RINDGE — Franklin Pierce University’s credit rating has been downgraded to Triple C recently.
Higher education has historically been a stable sector of the economy, according to Standard & Poor’s Financial Services podcast this week. However, the credit downgrade is part of a larger economic trend that started in 2013 when the number of downgrades in higher education outpaced the number of upgrades.
“Our rating action was triggered by the fact that Franklin Pierce failed to make a required monthly deposit to its debt service fund in April,” S&P associate Ashley Ramchandani said in the podcast. “We later found out that the university lost a line of credit in September 2013 which they rely on heavily to offset pressure on seasonal cash flow. To address this liquidity crunch, Franklin Pierce 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 effectivity subordinated the university’s outstanding public debt. … We feel that it’s now likely Franklin Pierce will default without an unforeseen positive public outlook.”
In response to questions about the credit downgrade, Franklin Pierce spokeswoman Lisa Murray released this statement Wednesday: “Franklin Pierce University has recently restructured its finances to improve its financial outlook, but understands that rating systems such as S&P 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 bondholder position, referenced as part of S&P’s decision to downgrade Franklin Pierce, was done with the bondholder’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.”
In the podcast, Ramchandani concluded there are some positive signs in the higher education sector.
“On the one hand, the weakest universities will continue to be negatively impacted by affordably issues, decreasing enrollment and fierce competition for students, all of which pressure operations,” she said. “But on the flip side, there are some positive signs in the sector. 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.”