February 10, 2021
Rating Action: Moody's assigns first-time Ba2 rating to Noorda College of Osteopathic Medicine, LLC's Taxable Educational Facilities Revenue Bonds Series 2021A and Series 2021B issued through the Public Finance Authority; outlook stableGlobal Credit Research - 10 Feb 2021 Approximately $127 million of debt securities affectedNew York, February 10, 2021 -- Moody's Investors Service, ("Moody's") has assigned a first-time Ba2 rating to Noorda College of Osteopathic Medicine, LLC's (Noorda COM) $48 million Taxable Educational Facilities Revenue Bonds (Noorda College of Osteopathic Medicine Project) Series 2021A and $78.6 million Taxable Educational Facilities Revenue Bonds (Noorda College of Osteopathic Medicine Project) Series 2021B issued by the Public Finance Authority.
Noorda College of Osteopathic Medicine, LLC ("Noorda COM") is the obligor for the bonds and was formed in March 2017 in the City of Provo, Utah with a mission to provide a critically needed solution to acute physician shortages in Utah and the contiguous Rocky Mountain States' region, including Montana, Wyoming, South Dakota, and North Dakota.
RATINGS RATIONALE The Ba2 rating reflects Noorda COM's strong revenue generating potential and cashflow predictability owing to the limited number of MD (Doctor of Medicine) and DO (Doctor of Osteopathic Medicine) school spots in the US despite a materially outsized demand. This view has been already substantiated by the high number of applications received to date that currently exceed 13x the size of the fall 2021 inaugural class. This strong demand is forecast to continue, and
the competitive tuition rates assumed support a relatively high degree of cashflow predictability with strong resiliency as annual debt service coverage ratios should exceed 3.0x in most reasonable sensitivities.
The rating is further constrained by Noorda COM's limited scale (
$50 million in operating revenues in 2027 in the base case)and revenue concentration that is almost entirely tuition dependent. We believe full accreditation is likely to be obtained by year-end 2025 as planned given no DO school that has reached pre-accreditation stage has ever failed to achieve full accreditation status to date.
A Ba2/BB rating is below investment-grade or sometimes referred to as high-yield or junk. Thus, the yield on the bond is generally higher than on an investment-grade security to compensate for the greater risk of payment default that the bond investor is taking on.
Ba2/BB are ratings by Moody's Investor Service and S&P Global Ratings, respectively, for a credit issue or an issuer of credit below investment grade.
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Good to know that DO schools are now being financed using junk bonds. Noorda projects operating revenue of 50 million in 2027. If the class size remains at 150 students per year then they would have to raise tuition to more than 80K per year to generate 50 million in tuition in 2027. This indicates to me that they definitely already plan to increase their class size by 2027 because I doubt they are going raise tuition to >80K within 6 years.