Fort Lewis College Board of Trustees unanimously voted to restructure up to $5.5 million in bond payments – providing more financial flexibility should an extended COVID-19 pandemic pinch the school’s budget.
The vote allows the school to move the next three scheduled payments of the bonds to the end of the repayment schedule. The restructuring essentially delays payments planned in October 2020, April 2021 and October 2021 through the entire bond repayment period and extends the maturity for one year, from October 2038 to October 2039.
Colleges were given the power to restructure bonds by Gov. Jared Polis to aid in dealing with financial pressure put on them by the global viral pandemic.
Frederick Marienthal, an attorney with Kutak Rock who advises FLC on bond issues, said Colorado State University recently restructured $200 million in bonds in a similar manner, which is referred to as a “scoop and toss.”
The University of Colorado Boulder also has used the procedure to restructure bonds, he said.
Steve Schwartz, FLC vice president of finance and administration, told trustees the school’s bond rating had been lowered from A2 to A3 by Moody’s Investor Service.
“We were disappointed with this, but it was not totally unexpected,” Schwartz said. “S&P put the whole higher education sector on watch earlier this year because of the COVID-19 pandemic.”
Moody’s lowered the bond rating because of recent years of declining enrollment, financial stress from the pandemic and the budgetary situation of the state of Colorado.
Schwartz said two of the three reasons for the downgrade – the pandemic and the state’s budgetary situation – are out of the control of FLC.
According to a statement issued by Moody’s: “The college projects operating performance pressures through at least fiscal 2021, with coronavirus financial impacts affecting fiscal 2020 and 2021 and state funding cuts impacting fiscal 2021 and potentially beyond. Furthermore, the college has faced significant enrollment challenges over the past few years with a resulting loss of approximately 10% of students since fall 2015, notable given the college’s high-reliance on student charges to fund operations.”
Nick Taylor, with North Slope Capital Advisors and FLC’s bond market consultant, said Moody’s specifically moved FLC from an A2 negative rating to an A3 stable rating, and the fact that FLC was given a stable rating should not substantially impact the cost to the college in issuance of bonds.
The current market environment with low interest rates and high demand for higher education bonds from Colorado, in fact, favors a lower cost in the bond restructuring, Taylor said.
Schwartz said in an email: “We are optimistic that the downgrade will have minimal negative impact on the college’s cost of capital on its upcoming bond issuance. The stable outlook assigned to the “A3” rating for the upcoming bond issue hopefully signals to investors that the college is safely positioned in the ‘A’ category for the foreseeable future.