Moody's recognizes Howard's alternative revenue plan

Credit rating agency supports the school's use of airwaves, real estate

Moody's Investors Service is bullish on the financial future of Howard University thanks to two deals the school recently struck. 

The credit rating agency released an analyst note that praised Howard's $22 million deal to lease residence hall land to a luxury rental developer, as well as the school's decision to auction its airwaves. Both assets represent "credit strength in the university's ongoing effort to manage liquidity, restore financial stability and address capital investment needs."

Howard, a historically black university, has faced significant financial pressure. In recent years, the school weathered two credit downgrades and staff cuts. For the last three years, the university's medical center expenses exceeded revenue, and competition from area hospitals stunted revenue growth.

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When Howard President Wayne Frederick took office in 2014, he saw the university's real estate portfolio as an untapped asset—at that time, it was valued at $1.3 billion.

"Howard benefits from its wide geographical footprint across Washington's neighborhoods with rising property values and investor demand," Moody's analysts wrote.

So the school entered into a 99-year ground lease agreement with Jair Lynch Real Estate Partners. In addition to eliminating $31 million in deferred maintenance to a residence hall, the developer will pay Howard the full $22 million upfront so the school can use the money immediately—rather than waiting for monthly installments. Among other things, the funds are earmarked for repairs as well as for new ambulatory care centers at the university's hospital, which will generate more revenue, according to the Moody's analysts. 

Analysts also complimented Howard's decision to participate in a Federal Communications Commission auction of airwaves that carry the signal for the school's television channel. However, donors, communication school faculty, and alumni have condemned the move, calling the airwaves invaluable.

The FCC quoted the airwaves as worth $461 million. The sale price may be much lower though, as the auction is set up to have bid values decrease as it goes on. Moody's estimated it may fall as low as $184 million. 

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But Moody's says that even if the closing deal is in the middle of the quoted range, Howard's spendable cash and investments will increase by about 20% with "limited immediate financial downside risk" (Douglas-Gabriel, "Grade Point," Washington Post, 6/27; Reed, Washington Business Journal, 6/28). 


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