Moody’s: At current pace, Yeshiva U. will run out of money in 2015

NEW YORK (JTA) – Yeshiva University is at risk of running out of unrestricted cash in the near-term future, Moody’s Investors Service warned.

Moody’s has downgraded Y.U.’s credit rating several times over the last three years, including on March 5 to B3, indicating a high credit risk.

In a report released March 21, Moody’s said that deep and growing operating deficits are likely to continue due to “poor financial oversight and high expenses”; much of Y.U.’s cash and investments are tied up in restricted funds the university cannot use for operating expenses; and banks may not extend credit to the troubled university.

“The negative outlook reflects the risk that Yeshiva will deplete its available unrestricted liquidity before management is able to execute a successful financial turnaround,” Moody’s new report said.

Only 14 percent of the $1.2 billion the university had on hand in 2013 is free from donor restriction and could be used for operating expenses, according to the report. Unless there is a change in operations, the report said, the university will run out of money by the end of 2015.

The Moody’s report, which was first publicized by the Forward on Tuesday, called Y.U.’s business model “untenable.” Last year marked the sixth consecutive year of operating deficits, and Y.U.’s operating margin excluding gifts dropped in 2013 to -42 percent. Seven years ago, the operating margin was at -6 percent.

“The severity and long duration of Yeshiva’s operating deficits are primarily due to weak financial management and the board’s unwillingness or inability to act,” the report said. “Historically ineffective internal controls and limited transparency contributed to an inability to identify and correct problems.”

The report faults the board for failing to hold leadership accountable. Through a spokesman, Y.U. President Richard Joel declined to comment.

Y.U. has taken several steps in recent months to improve the university’s finances. Last month, the modern Orthodox university confirmed that it was selling 10 apartment buildings in the vicinity of its campus in the Washington Heights section of Manhattan that could net the school $250 million. The board also has approved exploration of a voluntary retirement program, the Moody’s report said.

“The university’s near-term financial viability depends on substantial and swift actions,” Moody’s said.

The report cited several reasons for high costs at the university: maintaining separate men and women’s campuses, upgrading equipment at the Albert Einstein College of Medicine in the Bronx; and the university’s high-cost educational model. Meanwhile, tuition revenue has stagnated as Y.U.’s competitors eat into the school’s core market for students.