Franklin Pierce University credit rating downgraded

Aug. 01--RINDGE -- Franklin Pierce University's credit was downgraded recently by two investor agencies, following a year of significant cuts and some financially driven changes at the school.

In July, Standard & Poor's dropped the university's rating from "B" to "CCC," and in June, Moody's Investor Services downgraded the university from "B3" to "Caa3." Both agencies assigned the university a negative outlook, and said Franklin Pierce is vulnerable to defaulting on loans within the next 12 months. Each downgrade represents three notches on the investors' scales.

Credit ratings are just one way the health of a university is measured. The aim is to assess the risk of failure to meet contractual financial obligations, and ratings are based on several measures, including enrollment numbers, net tuition revenue, investments, available cash and total debt.

Roughly 1,400 students attend Franklin Pierce's undergraduate campus in Rindge. Another 800 participate in graduate programs.

Both agencies said the decision to downgrade Franklin Pierce was made in part because of the university's failure in April to make a monthly deposit to a debt service, and Moody's said that's the latest sign of concerns over whether the university's assets can cover its liabilities.

In a statement this week about the credit downgrades, Franklin Pierce spokeswoman Lisa Murray said that credit ratings are based on one point in time, and that some of the factors cited in the downgrade -- specifically terms of the university's new line of credit -- were done at the urging of bondholder in order to get the credit. The university also has recently restructured its debt and is optimistic about fall enrollment numbers, Murray said.

In the agencies' most recent annual reports on higher education, downgrades have outpaced upgrades across the country in the past year, particularly for small, private colleges such as Franklin Pierce that rely heavily on tuition revenue and have small endowments.

A slow economic recovery has put pressure on colleges, and while managing student affordability and bringing in revenue is a "difficult balancing act" for all universities, that's especially true for private schools, according to the Standard & Poor's report. Still, just 7 percent of the 265 private colleges and universities the agency rated had a speculative rating, which is anything below a "BBB" on its scale. Nine percent of private schools had a negative outlook as of May, while 89 percent were stable.

At Franklin Pierce, tuition revenue dropped from $24.3 million in 2008 to $18.3 million in 2012, according to a recent report from the New England Association of Schools and Colleges, an accreditation organization that visited the campus in October.

Part of Standard & Poor's downgrade also was due to the expiration of the university's line of credit in September, which universities use to pay bills when cash from tuition isn't coming in. Franklin Pierce has since secured a one-year, $5 million line of credit with Arlington, Mass.-based Leader Bank.

Other issues driving the Standard & Poor's rating are: more than $40 million in debt relative to a $6 million endowment; very low expendable resources; a trend of operating deficits, including a $1.1 million deficit in 2011 and $1.2 million deficit in 2012 (the university broke even in 2013); and several years of declining student populations.

The university hasn't used its debt service reserve fund yet, which as of May had about $4.1 million available. And while Franklin Pierce is making significant financial changes, those likely won't affect operations until fiscal year 2015 or 2016, according to Standard & Poor's.

Franklin Pierce's credit downgrades come after a difficult year for the school. In January, the university announced it was cutting six academic programs, though administrators stressed that the decision was based on low enrollment numbers in those programs and not finances.

At the same time, President James F. Birge also announced changes aimed at saving the university money, including reducing the amount of financial aid given out by Franklin Pierce and cutting health insurance plans for students, for a total annual savings of about $630,000.

Most recently, 12 staff positions were cut in June. Eight of them were vacant. The university has not said what those positions were.

This is the second consecutive time both agencies have issued downgrades for Franklin Pierce, following a December 2012 downgrade from Moody's and a July 2013 downgrade from Standard & Poor's.

Kaitlin Mulhere can be reached at 352-1234, extension 1439, or [email protected]. Follow her on Twitter @KMulhereKS.

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