Financial fears grow as Rider’s bond rating is slashed to junk status
By Stephen Neukam
As the coronavirus (COVID-19) throws everyday life for students, staff and faculty into uncertainty, Rider’s financial future becomes more and more insecure, with the bond credit rating business Moody’s downgrading the university’s revenue bonds to junk status on April 6.
The rating means that the school’s bonds carry a higher chance of default, and will affect rated bonds worth $73 million through the New Jersey Educational Facilities Authority. Additionally, should the university borrow more money in the future, it is likely to pay higher interest rates.
While the Moody’s report makes clear that its action comes on the heels of the projected costs of COVID-19, the general financial situation of Rider is what precipitated the downgrade.
The report notes that declining enrollment and net tuition revenue were a factors in the downgrade. Also, Moody’s is not very optimistic about the forecast for these issues, saying that smaller incoming classes and increased tuition discounts will cause revenue to decline further in fiscal year 2020. Additionally, it cautions for the prospect of a recessionary environment as a result of the virus, which may cause students to choose lower-cost alternatives.
On top of declined revenue, the school continues to post operating deficits, with the administration’s latest projection in March being a $14.1 million deficit for the current fiscal year.
Rider’s ongoing financial issues have been compounded by COVID-19, and in particular, the university’s policy of issuing a refund or credit to students for room and board for a portion of the spring semester. The exact cost of this policy, or the amount of refund students can expect, has not been announced.
Rider President Gregory Dell’Omo and Chief Financial Officer Jim Hartman declined to be interviewed for this article.
The administration is still assessing how severe the economic damage of COVID-19 will be. Vice President of University Marketing and Communication Kristine Brown said that the university is monitoring “enormous” sets of projections and estimates and also receiving guidance from state and federal sources.
“Once we have a clearer picture of the entire situation and all the information we need to consider, we will then be in a better position to discuss the extent of the impact this pandemic is having on the university, as well as the various actions which will need to be taken to address the situation,” said Brown in a statement to The Rider News.
There are signs that relief may be coming for the university. As part of the national Coronavirus Aid, Relief and Economic Security Act, Rider is set to receive over $3.6 million from the federal government. A minimum of just over $1.8 million of that amount must be awarded for emergency financial aid grants to students.
“At this time, we are working on a plan to utilize these funds as they are intended,” said Brown. “When that plan is finalized in the next several weeks, we will communicate the details to our university community.”
However, the Moody’s report indicates that while the federal aid might grant some immediate relief to Rider, it is unlikely to neutralize the short and long term effects of the virus on the university.
Professor in the Information Systems and Supply Chain Management Department Arthur Taylor said that it is clear that COVID-19 was not the reason for Rider’s rating downgrade. Instead, it is a consequence of Rider’s management and business decisions, he said.
“In my opinion, Rider’s current financial predicament is almost entirely self-inflicted,” said Taylor, who also serves as the vice president for Rider’s Chapter of the American Association of University Professors (AAUP).
Taylor pointed to Rider’s failed attempt to sell Westminster Choir College (WCC) and the revenue that it lost for the university. In particular, he said the drop in enrollment at the choir school, which fell by 42% between 2016 and 2019, was a massive opportunity cost for Rider.
The cost associated with WCC will continue to climb for Rider. The administration has estimated that the cost of the consolidation of WCC to Lawrenceville will be between $16 million and $20 million.
The administration plans to recoup some of these costs with the sale of the Princeton campus, however, legal hurdles remain before that can be accomplished.
These expenses come at a time when the university has announced and begun major investments into infrastructure around its Lawrenceville campus. Some of the investments that have been prioritized are to help accommodate WCC students when they reach the campus in September.
Many universities throughout the country have halted construction projects due to COVID-19 — for example, George Washington University has suspended all major capital projects on its campus. However, New Jersey has allowed school construction to continue, and Brown said that progress continues to be made on the projects in Gill Chapel and Omega House. Brown did not mention the progress on the renovations to the Fine Arts Center.
“While there have been some minor challenges over the past month, mostly related to delay in delivery of construction supplies, the projects remain on schedule at this time,” said Brown.
To help fund these investments, the university has raised over $49 million during the “quiet phase” of an $80 million fundraising campaign. However, this number represents both gifts and pledges and they are often restricted for specific uses.
Complicating things further for the administration is the imminent negotiations between the university and the faculty union for a new bargaining agreement this summer. While faculty have not received a cost-of-living raise in six years, it is expected that there will be pressure on the administration to reach that threshold in the negotiations, with the Student Government Association President-elect Dylan Erdelyi signaling public support for that goal.
Taylor said that the union is “quite aware” of the economic conditions of the university, but said that there is a way for the administration to give the faculty a raise.
“They can change their behavior,” said Taylor. “They can quit making bad business decisions.”
The report by Moody’s details factors that could possibly lead to a rating upgrade in the future, including, “Significant and sustained improvement in financial performance to demonstrate long-term viability.” However, Moody’s is also grim about the possibility of a future downgrade, which it said could happen if there is a continued financial disruption due to COVID-19 and a further decline in enrollment, among other factors.
