Bond rating worries FPU staff
Financial issues lead to downgrade
In the wake of Franklin Pierce University’s bond rating being reduced by leading credit rating agencies, President of the school’s faculty union Douglas Ley says faculty are more than a little concerned. Both Standard and Poor’s and by Moody’s Investor’s Service, Inc. have given the university a negative outlook, barring a sudden positive development for the school.
Standard and Poor’s and Moody’s are credit rating agencies that publish financial research and analysis on stocks and bonds, and are known for their stock market indices. Bond issuers use ratings from agencies, such as Standard and Poor’s, to make determinations about whether an institution has the ability to meet its financial commitments. Standard and Poor’s recently lowered Franklin Pierce’s bond rating from B to CCC, and gave it a negative outlook, according to Ashley Ramchandani, an associate with Standard and Poor’s Rating, in a podcast interview distributed by Standard and Poor’s on July 25. Moody’s also lowered its rating of the school, going from B3 to Caa3. The new rating is indicative that Standard and Poor’s and Moody’s consider Franklin Pierce to be vulnerable, and dependent upon favorable business, financial and economic conditions to meet its financial commitments. In Moody’s ratings, institutions rated Caa3 are judged to be of poor standing and are subject to very high credit risk. The rating action was prompted by a failure on the part of Franklin Pierce to make a required monthly deposit to its debt service fund in April, and the loss of a line of credit by the university in September. According to Ramchandani, the university had been relying on that line of credit to offset seasonal cash flow issues.
“To address this liquidity crunch, the university issued a $1.86 million term loan and a $5 million line of credit with a bank in May 2014. The terms of this new debt issuance effectively subordinated the university’s outstanding public debt,” said Ramchandani in the interview.
Lisa Murray, the director of communication, corporate and community relations at Franklin Pierce University, said in a statement issued Monday that the university is making positive changes to its financial situation. “Franklin Pierce University has recently restructured its finances to improve its financial outlook, but understands that rating systems such as [Standard and Poor’s] make assessments based on a particular point in time. Franklin Pierce has negotiated a line of credit with a new lender, Leader Bank. Like many small private higher education institutions that do not yet have large endowments, Franklin Pierce depends on a line of credit to bridge those times between the two times a year it gets most of its revenue — when tuitions are paid. The subordinated bond holder position, referenced as part of [Standard and Poor’s] decision to downgrade Franklin Pierce, was done with the bond holder’s blessing in order to secure the Leader Bank line of credit. Franklin Pierce is optimistic about its projected enrollment and retention figures for the 2014-2015 academic year.”
Douglas Ley, the president of the Rindge Faculty Federation and a history professor at Franklin Pierce, said the faculty is looking at the outlook of the university, and not seeing much hope of the situation improving.
“Are the faculty concerned?” he said in an interview Monday. “You bet they are. Most of the upper echelons of management have already left,” said Ley, listing the university’s second in command of student affairs, Jules Tetrault, who will be leaving in the fall; the school’s Chief Financial Officer Richard Marshall, who resigned, and his interim replacement Bruce Bernier, whose contract was not renewed; and Dean at the College of Graduate and Professional Studies Lynne Rosansky, whose contract was also not renewed for the coming school year. He also pointed to FPU Provost Kim Mooney, who had participated in an interview process for a position in Maryland last year. “Basically, you can’t expect faculty to remain passive when your entire senior staff is either resigned or looking for other positions. To remain passive in a potentially negative, and a potentially fatal situation, is foolish. I’ve had a good number of faculty approach me, and I’ve advised, ‘You’d be foolish not to be looking [at other potential jobs] in these circumstances.’”
At the end of June, the university also laid off four full-time staff members and eliminated eight unfilled permanent positions, in response to economic difficulties. In February, Franklin Pierce closed six academic programs, American studies, theater and dance, graphic communications, fine arts, math, and arts management, citing poor enrollment in those disciplines as the reason for their decision.
Ramchandani did point out some potential bright spots for the university as well. The university does expect to make a full bond payment as scheduled on Oct. 1, and the university has not tapped its debt service reserve, which contains over $4 million, and it does have debt restructuring options. However, she said, the overall outlook from the point of view of Standard and Poor’s is still negative.
“Considering the likelihood of default, both in capacity and willingness to pay, we feel it is likely that Franklin Pierce will default without an unforeseen positive development,” said Ramchandani in Standard and Poor’s podcast. “The university has demonstrated a historical trend of operating deficits and had several years of declining headcount. Although in 2013 Franklin Pierce did have break-even operations, and is expecting an improvement in enrollment in 2014, the school also has very low expendable resources.”
Ley said that the enrollment numbers for the coming won’t solve all of the university’s current financial issues. “We’re expecting a good incoming class, and we’re hopeful on retention numbers, which could stabilize things for the moment, but the long-term problems won’t be solved by a good incoming class,” said Ley. “It’s going to be a struggle. It’s been a struggle for a long time, it’s almost like a hand-to-mouth existence. And for the management to simply cite circumstances like the current environment and economy isn’t fair, because other schools are in the same position and have done a better job. They need to take some responsibility for the situation the university is in. If you lead, you need to take responsibility clearly and publicly, and I don’t think that’s been done.”
Franklin Pierce’s revenue depends on income generated by tuition costs, which is currently $43,942 per year for undergraduates. The overall outlook for the future bond rating of universities will continue to be a mixed bag, said Ramchandani.
“The weakest universities will continue to be negatively impacted by affordability issues, decreasing enrollment and fierce competition for students, all of which pressure operations, but on the flip side there are positive signs in the sector,” said Ramchandani. “Investment returns have improved, universities are exercising more targeted recruiting and diversifying program offerings, which could all help to improve operations and, for institutions like Franklin Pierce, even their liquidity.”
Ley said that despite the negative outlook given to the university by both rating agencies, he still plans to remain as a faculty member, and that there are fellow members who are committed to the culture of the university that don’t plan on going anywhere until there is no other choice. There is still hope, he said, but it will require the university restructure its debt for lower payments and find new revenue streams.
“Do I have unbounded confidence? No. Do I have some hope? Yes. I’m hopeful, but if you look at the trends over the past five years, the trend has been in one direction, and it’s not a positive direction. And there is a waning confidence among many faculty members in the ability of the current leadership team to turn things around.”
Ashley Saari can be reached at 924-7172 ex. 244, or firstname.lastname@example.org. She’s on Twitter @AshleySaari.