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Moody's affirms ACU’s Aa2 stable rating

Ratings agency Moody’s has affirmed Australian Catholic University’s (ACU’s) Aa2 rating with a stable outlook.

Moody’s Vice President and Senior Credit Officer John Manning said the rating reflected the university’s robust financial profile and strong market niche in the provision of graduates in nursing, paramedics and teachers.

“ACU's market niche as the largest provider of teachers and nurses in Australia and low reliance on

international students underpin the university’s resilience to the revenue impacts of the pandemic and limits the impact to ACU from international travel restrictions and elevated geopolitical tensions facing the broader sector in 2021 and 2022.”

Mr Manning said that ACU's market position was well suited to the challenges that COVID-19 had posed, such as responding to the heightened demand for nursing graduates. This enabled a measured response to the pandemic.

ACU's credit profile remains supported by its low reliance on international students (international students represent 13% of total equivalent full-time student load), and its strong operating cash flow margins of 15.6% in 2020 (ended 31 December), from 17.8% in 2019.

International student revenue rose 4.2% to $A78.7 million in 2020 as most of its students stayed onshore ahead of border closures. However, Moody’s expects international student load will decline by 15%-20% in 2021 until international borders are reopened.

As a result, Moody's estimates ACU's operating cash flow margin to temporarily decline to 12%-13% over the next two years, reflecting workforce changes that will be primarily funded from surplus operating cash flows.

The rating also reflects the supportive institutional framework for universities in Australia, as well as ACU's healthy financial performance and moderate debt levels.

Moody's assessed that the university’s commitment to lowering emissions and waste, and continuing investment in carbon emission reduction projects across its campuses had no negative impact on its credit profile.

Social risks are generally moderate, and Moody’s has considered that ACU identifies and actively manages such risks at the highest levels. The university has developed and implemented uniform sexual assault and sexual harassment policies across all campuses.

Moody's considers the coronavirus outbreak as a moderate social risk, given ACU's small proportion of international students, and expects the university's cost-saving initiatives and reforms to mitigate the revenue shortfall caused by related travel restrictions.

Governance considerations are material to the university's credit profile, and the university's management credibility currently provides credit positive support. ACU's standards of governance are considered high and aligned with the general standards of governance for all Australian public universities. Data transparency is very high, with all material legislation, university statutes and policies published on the university's website, along with budgets, capital plans, policies and accounts.

ACU Chief Financial Officer Scott Jenkins credited ACU’s strong position to a concerted focus on financial sustainability with a commitment to strong oversight.

“A continued high level of governance and review has been critical in the university’s ability to plan for and to withstand significant external economic pressures,” he said.

“The university’s Senate manages and investigates cost controls and revenue opportunities on a regular and ongoing basis.

“To this end we have been able to maintain progress on a substantial building program in Melbourne and the opening of a new campus in Blacktown even while there have been increasing financial funding constraints within the higher education sector.”