Spooked by bad news out of the higher-education sector in recent months, including unexpected campus closures, potential mergers and poor enrollment projections, some prospective buyers are steering clear of bonds being sold by small, private colleges that don’t have national reputations, schools that rely heavily on tuition revenue, and those in regions facing population declines.
Moody’s Investors Service Inc. in September warned investors to expect closures at public and not-for-profit colleges to triple by 2017 from an average of five a year over the past decade, concentrated among the smallest schools. Some small schools have experienced several years of shrinking class sizes, which leaves fewer students paying for their relatively high fixed costs, and have lost market share to larger universities, Moody’s said.
Concerns about market forces were at play at Roseman University of Health Sciences in Henderson, Nev., when the school of about 1,500 students sought $67.5 million worth of bonds to pay for a new office and research building last spring. The process took two to three times longer than usual, said Ken Wilkins, the school’s vice president for business and finance. Standard & Poor’s had downgraded the 16-year-old school’s debt in February, and investors were asking about everything from the market viability of the school’s academic programs to its possible responses to increasingly far-fetched disaster scenarios.
“It felt excessive at times, especially those questions which we affectionately began to call the ‘asteroid questions,’” he said.