Centre College receives favorable bond rating, despite sector downgrade
In their most recent annual ratings of higher education this past December and January, both Moody’s and Standard & Poor’s (S&P) changed their outlook for the sector as a whole from “stable” to “negative,” suggesting a bleak outlook for 2018.
Individual institutions each receive their own bond ratings, and in its separate analysis, Centre College learned recently that it bucked the national trend positively, having its “stable” rating affirmed, along with its “A” long-term bond rating.
According to CFO Brian Hutzley, the rating is affirmation that Centre is pursuing sound financial policy that contributes positively to the institution’s long-term health.
“We pride ourselves on running a tight ship financially,” said Hutzley, “but the external challenges continue to mount. What works in our favor is a long history of fiscal discipline, going back over the last decade and more, that has established a firm foundation on which we continue to build.”
In its rationale for the rating, S&P described Centre’s enterprise profile as “strong, characterized by good student quality, excellent retention and stable enrollment.” The College’s financial profile was also described as “strong, characterized by improving operating margins, good financial resources and an ability to fully address contingent liabilities.”
S&P was equally impressed with Centre’s managed enrollment growth and the continually improving academic profile of its students, along with net tuition revenue growth and fundraising success.
The numbers speak for themselves.
Enrollment growth is at 10.7 percent since 2011. As well, the College’s current $200 million Third Century Campaign is already at $199 million, nearly a year ahead of schedule. And Centre’s endowment reached an all-time high of $324 million at the end of the fiscal year’s first quarter, and at the same time that the endowment spending draw rate has been reduced.
The endowment growth is notable given a recent finding by the National Association of College and University Business Officers (NACUBO) that “endowment results have generally been on the decline for much of the past decade.” In fact, Centre’s endowment has grown significantly over the last 15 years, from $130 million to $324 million, representing an increase of 149 percent.
Conversely, the higher education sector as a whole has vacillated in recent years between “negative” and “stable” ratings, moving in a positive direction most recently in 2015 before declining again this year.
Financial challenges, impacted by “muted growth in tuition revenue,” were a factor for Moody’s, along with uncertainty about how federal level policy changes, such as the recent tax reform, will impact higher education.
Similarly, S&P cited a number of potential risks beyond federal actions and tax changes. Growth in the “disparity between student expectations and willingness to pay” was key.
In other words, according to Adam Harris in a Chronicle of Higher Education story, “students and parents seek decreases in the cost of attendance, while expecting better services and amenities.”
While the education sector as a whole fits this scenario, with annual cost increases at five percent or higher in recent years, Centre has kept annual increases to a minimum, never exceeding 3 percent over each of the last six years.
At the same time, two new premier scholarship programs have been added as part of the current fundraising campaign, each thanks to eight-figure gifts, and graduation outcomes continue to hit high marks. The most recent graduates were employed or pursuing advanced study at an impressive 98 percent.
by Michael Strysick
March 5, 2018