Wed 19 Nov 2008
Below is an article from March 2003 on the College’s borrowing $100 million, thereby losing its triple-A rating. Prior to 2003, the College had much less debt. Going back to the 2000 Form 990 (pdf), we see that Williams had only (page 74) $78 million in debt. That is why it had a triple-A credit rating.
When Morty arrived, Williams had a leverage ratio of around 6% ($78 million of debt on a $1.4 billion endowment) on June 30, 2000. Under Morty’s leadership, Williams more than doubled its leverage, hitting 15% on June 30, 2008 ($262 million of debt on a $1.8 billion endowment). How is that working out for us? About the same as it did for all those condo-flippers in Ft. Myers.
Although the math is a little tricky, Morty’s (?) decision to increase the College’s leverage has cost Williams at least $50 million dollars. If we had kept our debt at $78 million (or let it rise in dollar terms but no higher than 6% of the endowment), Williams would be more than $50 million richer. This was the most costly mistake made at Williams in the last decade. Why won’t the Record report on it?
Williams College lost a coveted triple-A rating after being downgraded to Aa1 by Moody’s Investors Service yesterday, a move prompted by the upcoming sale of $113 million in debt next week by the liberal arts college, which is located in Williamstown, Mass.
The private college is selling $43 million in Series 2003H revenue bonds and $70 million in Series 2003I variable-rate revenue bonds on Wednesday. Of the Series H bonds, $13 million will be used for refunding. The remaining $100 million in Series H and I will be new money.
“We believe that Williams remains a fundamentally strong credit, but the current offering increases its debt burden to a point where it is no longer in the premier Aaa category,” said Moody’s analyst Gabriel Topor.
The funds from the sale will be used to finance the construction of several new buildings on campus, including a performing arts center, student union, faculty housing, and power plant. The bonds will be secured by the college’s general obligation pledge and are being underwritten by Morgan Stanley.
The school’s debt will rise by $100 million following the current transaction, which, combined with two straight years of investment losses, has significantly affected the college’s balance sheet.
The national economic downturn has caused disappointing investment returns on the school’s endowment, which is also contributing to the weakening balance sheet. However, fund-raising remains strong and is expected to play a pivotal role in helping the college to weather the dismal economic environment.
Christopher Wolf, manager of investments and treasury operations for Williams, said the college knew long before approaching Moody’s that this level of debt would place them in the high to median range for a Aa1 rating.
“The bottom line is we think this is the right debt-financing plan for the college and we don’t want the rating to be the deciding factor in financing our capital plan and locking in some extremely low rates,” Wolf said.
He also said that though school officials had looked into the possibility, entering into a swap with the variable-rate bonds is unlikely since Williams is generally fairly conservative in managing its debt.
Williams’ outstanding market position puts the new rating at stable, according to Moody’s. The college has a selectivity ratio of 22% and enrollment is likely to remain constant at slightly over 2,000 students, which college officials consider ideal.
Standard & Poors rates the college AA-plus. Fitch does not maintain a rating.
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