Moody's downgraded the university's bond rating from Baa3 to B1 last Wednesday, a day after the Higher Learning Commission withdrew the private Beckley-based school's general accreditation. The commission said Mountain State did not meet its criteria for leadership, resources, planning and oversight.
Debt obligations rated B by Moody's are subject to high credit risk.
A Mountain State spokesman didn't immediately return a telephone call Tuesday seeking comment.
Mountain State officials have said they will appeal the loss of accreditation, which is effective Aug. 27. The school has until July 27 to formally appeal, and would remain accredited during the appeal process.
Moody's noted the school's plan to appeal in a news release but said that it believes the commission's decision "signals an increased likelihood that the university will ultimately lose its accreditation."
"The loss of accreditation is one of the largest enterprise risks universities face. The loss would be a sharp blow to the Mountain State University business model with the expectation that enrollment would plummet and its students would no longer be able to benefit from federal financial aid programs," Moody's said.
Eighty-nine percent of Mountain State's revenue in fiscal 2011 came from student charges, and 81 percent of its undergraduate students received financial aid. A majority of students receiving financial aid participated in federal programs, Moody's said.
Mountain State has $5.6 million in rated debt issued through the city of Beckley and the Raleigh County Building Commission.
The university has campuses in Beckley, Martinsburg, Florida, North Carolina and Pennsylvania.