An investor service company's formal "outlook" for Henderson State University has changed to stable from negative.
The change in the "outlook" as revised Feb. 16 by Moody's Investor Service reflects the school having joined the Arkansas State University System, according to a Moody's update report. The merger became final Feb. 1.
"Joining a large state university system will be beneficial for HSU, providing for stronger fiscal oversight in addition to brand recognition," the Moody's report states.
Financial troubles emerged for the Arkadelphia campus as its fiscal 2019 ended with a deficit and cash shortfall. In July 2019, Moody's downgraded HSU's bond rating to Baa2, considered a medium grade. The bond rating remains unchanged.
An "outlook" is a comment on whether a rating is likely to change, said Justin Marlowe, a research professor at the University of Chicago and editor-in-chief of Public Budgeting & Finance.
"A stable outlook means the issuer's rating is unlikely to change in the next 3-6 months. Investors pay attention to ratings outlooks for much the same reason they pay attention to credit ratings generally -- because they offer information about an issuer's credit risk," Marlowe said in an email.
Marlowe said having a negative outlook can lead to higher borrowing costs.
Earlier this month, ASU System President Chuck Welch said Henderson State is "in a far better position today than 18 months ago," when the ASU System first stepped in to provide support services in 2019. Welch, a former president of Henderson State, said there was no plan for the campus to take on additional debt.
HSU enrolled 3,147 students last fall, according to the state Division of Higher Education, a decrease of about 12% compared with a year earlier.
The Moody's report states that the ASU System's oversight "will likely help restore balanced operations at HSU over the long-term," but also cited the school's decline in enrollment.
"Over time, we expect some improvement in financial performance and stabilization of liquidity, but a steep fall 2020 enrollment decline and continued potential for enrollment volatility will pose ongoing difficulties in fiscal 2021 and beyond," the Moody's report states.