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Investing.com -- Moody’s Ratings has lowered the long-term rating on the Smithsonian Institution’s revenue bonds to Aa1 from Aaa, while the outlook has been revised to stable from negative. The short-term VMIG 1 rating on the 2003 Multimodal Revenue Bonds, Series A & B (Smithsonian Institution) remains affirmed. As of September 30, 2024, the Smithsonian had a total debt of $434 million.
This downgrade comes after the United States government’s rating was also reduced to Aa1 with a stable outlook on May 16, 2025. This is due to the significant financial and governance ties between the Smithsonian and the US government, which accounted for 51% of the Smithsonian’s operating revenue in fiscal 2024.
The Aa1 rating on the Smithsonian’s revenue bonds is a reflection of its exceptional credit quality and its unique position as an educational, cultural, and research institution with high public demand and support. The Smithsonian benefits from significant wealth, with total cash and investments of $4.1 billion and continued donor support. It also has annual liquidity of nearly $2 billion, which strengthens its ability to handle revenue and expense challenges. Additionally, it has a manageable debt burden, with the fiscal 2024 EBIDA margin of 13.3% providing 10.9x debt service coverage.
The Smithsonian’s status as a trust instrumentality of the US government, receiving consistent appropriations from the federal government, supports its credit quality. However, this relationship also makes the Smithsonian susceptible to federal budget shutdowns or delays and ties its credit quality to that of the US government. Despite this, the Smithsonian has effectively managed funding delays in the past, reflecting strong governance for this large and complex organization. The Smithsonian is not highly reliant on visitor revenue, as most of its facilities offer free admission.
The affirmation of the VMIG1 rating is further supported by a standby purchase agreement (SBPA) with Northern Trust (NASDAQ:NTRS) Company.
The stable outlook reflects the Smithsonian’s ties to and dependency on the US government for operating and capital funding. It also takes into account sound liquidity, operating discipline, and manageable financial leverage.
Factors that could lead to an upgrade of the ratings include an upgrade of the US government or a significant increase in total cash and investments with spendable cash and investments to operating expenses moving to above 4x while maintaining other fundamental strengths.
Factors that could lead to a downgrade of the ratings include a downgrade of the US government, a reduction in financial support from the federal government or sustained interruption of appropriations, weakened operating performance with EBIDA margins below 10%, a substantial decrease in financial reserves or a marked increase in financial leverage, or a downgrade of the short-term CR Assessment of the Bank or the long-term rating of the Bonds.
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