On April 6th, Moody’s bond rating service downgraded Rider’s current bond issue. This move was not unexpected given the university’s increasingly challenging financial position. But it is important to note that, contrary to some reports, Rider’s bond rating is not being downgraded due to the coronavirus outbreak.
The seeds of Rider’s financial predicament pre-date the current pandemic by several years. As Moody’s report indicates, the financial information which formed the basis of the report consisted of audited financial statements ending with the 2018-2019 fiscal year.
First and foremost, Rider’s current financial predicament is almost entirely self-inflicted. The misguided efforts to sell the land on which Westminster Choir College (WCC) resides has cost the school approximately $11 million as of 2019, and approximately $6 million of that loss is recognized as a yearly loss as deducted from Rider’s income. This is an opportunity cost — what could have been part of Rider’s current revenue stream but is not there as a consequence of the decision to try to sell the college.
So when the Moody’s report identifies ‘declining enrollment’ at Rider as a financial issue, it is important to note that the bulk of Rider’s declining full-time student enrollment is directly attributable to the decline in enrollment at WCC. At this point, enrollment at WCC is approximately half of what it was before current President Greg Dell’Omo came to Rider, and as reflected in annual revenue which would be generated by those missing students, that is approximately $6 million per year in lost revenue.
The other leg of Rider’s shaky financial stool is the excessive debt incurred to build, or as Dell’Omo likes to refer to it, ‘invest’ in capital improvements to facilities. The stated goal of this building was to attract students, and since it is positioned as an ‘investment,’ we should assume it was expected to produce more revenue for the institution. As the Moody’s report clearly indicates (but does not state), this ‘build it and they will come’ approach to boost enrollment at Rider has failed, enrollment is not increasing, and as a consequence of the borrowing, Rider has a $6 million per year cash expense to service (or ‘pay off’) the debt incurred to make these capital improvements.
The sum total of these administrative decisions — the additional debt, the expensive effort to sell a college and its donated land, and the resulting decline in enrollment from those actions — have both increased expenses and reduced revenues, thus creating a ‘financial pinch’ which is leading to the losses which the Moody’s report identifies. And once again, these are not environmental impacts on Rider’s finances, these are simply bad decisions which have had a severe impact on Rider’s finances.
What is shocking is that Rider’s administration wants to compound these failures by accumulating another $25 million to $35 million in debt to replicate WCC’s Princeton facilities on the Lawrenceville campus. This would only compound Rider’s current financial predicament. WCC’s enrollment decline would continue since the Princeton campus and its facilities are part of the draw for that college and moving those programs to the Lawrenceville campus where the facilities to service that program is substandard will only continue to dissuade potential choir college students from enrolling. Furthermore, the $25 million increase in debt incurred to duplicate facilities already on the Princeton campus would be more expensive (the interest rate would be higher) because of the bond ratings downgrade and the increased debt would burden Rider with an additional $2 million to $4 million in cash debt service payments annually.
While it is management’s purview to run the institution as they see fit, it is the purview of the other stakeholders at the institution to criticize them when they see strong indications of failure. The Moody’s downgrade is a clear affirmation of the years of criticism leveled at Rider’s senior administrators for their reckless actions concerning WCC. The downgrade is a powerful public statement that Rider’s senior administration and board of trustees must stop the excessive spending on unnecessary building projects, end the disruptive actions which continue to impact enrollment (and revenue) and begin to run the institution with some degree of financial pragmatism.
Professor, Information Systems and Supply Chain Management Department