Yeshiva University lost about $100 million when Bernard Madoff, a trustee, was revealed to be a fraud in December 2008.

While Madoff left the board and is in prison, Yeshiva is still struggling. The school warned that its chronic budget deficits may worsen after failing to produce an annual financial report on time. The move led Moodys Investors Service to cut its rating this month to an unprecedented four levels below investment grade, spurring investors to sell Yeshiva debt.

Its about their management, said Emily Schwarz, an analyst at Moodys in New York who focuses on higher education. I dont see the market being the main concern. They really have a real niche. They are the Jewish university of New York.

Much is at stake for Yeshiva, which was founded more than 100 years ago and is central to the Modern Orthodox community in the U.S., with top-rated medical and law schools as well as a rabbinical school. The university was in the midst of ambitious growth when Madoffs Ponzi scheme unraveled, adding faculty and expanding campuses around New York. It is still seeking to meet fundraising campaign goals.

The university has been unable to control operating costs, particularly at the Albert Einstein College of Medicine, and it encountered delays deploying a system-wide accounting network common at other nonprofits, Moodys said. Management has sought to cut spending, stirring some faculty discontent by freezing salaries. Yeshiva generated annual deficits of $107.5 million in 2010, $46.7 million in 2011 and $105.9 million in 2012.

Richard Joel, who spearheaded Yeshivas expansion after becoming president in 2003,... Read More

Richard Joel, who spearheaded Yeshivas expansion after becoming president in 2003, froze senior administrative salaries and hiring last year. Close

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Richard Joel, who spearheaded Yeshivas expansion after becoming president in 2003, froze senior administrative salaries and hiring last year.

You might be able to get enough donors to write some checks to fix this problem, but people dont like to back institutions that have problems -- they like to back winners, said Howard Cure, municipal research director at Evercore Wealth Management in New York. The company, which oversees about $4.9 billion, liquidated its investments in the schools debt last year. Yeshiva has a lot of problems.

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Madoff Haunts Yeshiva as University Slides to Junk: Muni Credit