Dartmouth credit rating lowered
By Mitch Davis, The Dartmouth Staff
Published on Wednesday, May 27, 2009
Days before the College plans to issue over $400 million in bonds, Standard & Poor’s downgraded the College’s credit rating to double-A plus, the second highest rating, from its prior triple-A status. The change will likely have only a marginal effect on the College’s upcoming bond issue, according to Adam Keller, Dartmouth executive vice president for finance and administration.
Because of the downgrade, Dartmouth will incur “a very modest cost” — interest rates will increase between one and two-tenths of one percent on the new bonds, Keller said in an interview with The Dartmouth.
The rating was lowered in response to Dartmouth’s “continued operating deficits” through 2011, a decline in the value of endowment assets and a “significant debt issuance,” according to the S. & P. report.
Keller said he believes the decision was made primarily because Dartmouth decided to issue the new taxable and tax-free bonds.
College officials were “certainly not surprised” by the rating downgrade, Keller said. Representatives from S. & P. made clear after the College last issued bonds in 2006 that taking on more debt could trigger a rating reduction, he said.
S. & P. is one of two major rating agencies that will provide a credit rating for the College. Moody’s, the other agency, has yet to issue its report.
While Dartmouth currently has the highest available credit rating from Moody’s, Keller said he expects to receive a report from the agency later this week and “would not be surprised” if the College’s rating by that agency is also reduced.
Tuesday’s report by S. & P. also noted that the endowment decline is “in line with market trends,” and that the College has suitably managed its operating expenses, employee benefits and fundraising activities.
Keller said that the agency acknowledged that Dartmouth is taking the necessary steps to manage its finances. He also defended the College’s policy of “aggressive” endowment spending and borrowing.
“We were really looking at pursuing our mission and using our broader definition of assets to include human resources … physical facilities, even the student body at Dartmouth,” he said. “As a result, I think we’re a much better institution.”
The College would have been more deeply affected by the economic downturn and unable to make recent improvements had it not followed this financial strategy, he added.
The double-A rating class applies to organizations with a “very strong capacity to meet financial commitments,” according to the S. & P. web site. An organization’s standing relative to other debt issuers in the class is marked by the addition of a plus or minus to the rating, signifying a stronger or weaker standing, respectively.
Harvard University, Princeton University and Stanford University, all of which have issued taxable bonds over the past six months, have retained their triple-A ratings with S. & P.. Duke University, which completed a bond issue in February, has maintained a double-A plus rating for the past several years.
The rating downgrade will not affect Dartmouth’s standing with peer institutions, Keller said.
“There are a lot of double-A rated institutions that are our peers,” he said. “It’s not going to be problematic at all from a competitive standpoint.”