RPI credit rating dropped again
S&P ranks college at lowest-possible investment grade
TROY, N.Y. >> A major international credit rating agency again dropped its assessment of the financial health of Rensselaer Polytechnic Institute at the beginning of the year. In a global rating report issued Jan. 5 by Standard & Poor’s and obtained by The Record, RPI saw its long-term bond rating dropped from A- to BBB+, with the company citing as reasons for the drop the college’s high debt burden and low available resources. BBB is the lowest score for which a bond would be considered of investment grade, according to S&P, and signifies that while the college has adequate capacity to meet its financial commitments, changing circumstances or an economic downturn could weaken that ability. “We assess the financial profile as vulnerable with available resource ratios compared with expenses that are below speculative-grade medians and a high debt burden,” S&P states in its report on RPI. Instead of simply giving the school a standard BBB rating, however, S&P settled on BBB+ because of what it termed solid student demand and good retention. The report cites RPI’s enrollment and demand as a “key credit strength,” but advised the college could do more to generate revenue and improve operating performance, specifically suggesting modest growth and increased summer programming. In a statement emailed Thursday afternoon, Richie Hunter, vice president for strategic external relationships, attributed the college’s high debt load to strategic investments “in the transformation of the student experience, academic programs, and physical campus.” He also pointed to S&P’s comment that “completion of a transformative capital plan and successful $1.4 billion fundraising campaign that ended in 2008
and plans for another campaign” would likely help the college to replenish its resources.
“As noted by S&P, we are launching a capital campaign this fall and will aggressively grow our financial resources and alumni participation,” he said. “As a result, debt will decrease and the ratio of assets to indebtedness will improve. We anticipate, in the coming years, that the rating will remain stable, and indeed improve.”
According to the report, the college has finished each budget year with an operating deficit since at least 2013. The 2015-16 deficit was just under $5.8 million, based on expenses totaling more than $527.7 million, but the deficit was down from about $8.2 million in 2014-15 and more than $20 million each in 2012-13 and 2013-14. The college carried total debt of more than $778 million as of the end of the 201516 school year, according to S&P, with the most recent being $80 million in bonds issued in 2015 to pay off bonds issued in 1999 and 2006, and spent more than 12 percent of its 201617 budget on debt service alone.
S&P did give the school an outlook of “stable,” however, saying its profile and high student demand overcome its shaky finances.
“We expect RPI will maintain its demand trends,” the report states, “and will improve operating performance over time in light of the fact available resources will take time to improve even given initiatives to fundraise and accelerate debt pay down and may not reach levels commensurate with the rating for some time.”
Financial issues are nothing new for the college, which had to provide a $20.4 million letter of credit to the federal Department of Education in 2015 to continue receiving federal aid without having to submit to cash monitoring or other governmental oversight. It is one of several areas where college President Shirley Ann Jackson has met with criticism from students, faculty, staff and alumni. Several alumni have said that thorny relationship — which has included what critics call a twice-aborted effort to wrest control of the 125-year- old Rensselaer Union away from students that led to a massive on-campus protest in April 2016 — has affected fundraising, especially within their group.
That assertion is backed by the school’s most-recent ranking by Forbes magazine, which placed RPI 135th among the nation’s top colleges in its 2016 report. In its analysis of the school, Forbes gave a financial grade of C+ and said only about 9 percent of alumni donate to their alma mater, well below the three-year average among private colleges of 19 percent, as reported by the Blackbaud Institute, a philanthropic support group based in Charleston, S.C. In contrast, Skidmore College in Saratoga Springs had a 2016 alumni participation rate of 23 percent.
Looking into the future, S& P warned it could further reduce RPI’s rating within the next year or two if either the college fails to meet its stated financial plans or if it sees either a decline in revenue or the addition of new debt. Jackson pledged at the April press conference to introduce new men’s hockey coach Dave Smith to dedicate $20 million to upgrade the team’s home in the antiquated Houston Field House. The former U. S. Navy warehouse has been the team’s home ice since 1950 and is the third- oldest college hockey arena in the nation.
On the other hand, S&P said that while a higher rating is not likely within the next two years, any future increase would require improvement in its financial resources or that the college at least break even and show a trend toward continued improvement.
S&P last adjusted RPI’s rating in 2014, when it maintained an A- rating but changed its outlook from “stable” to “negative,” again citing the college’s debt burden as an area of concern. Moody’s Investor Services, another internationally recognized rating agency, currently has RPI’s creditworthiness rated A3 with a negative outlook, a rating that was last changed in 2009, when the college was downgraded from an A2 rating.