Iona College has positioned itself for a credit upgrade by boosting its financial reserves through an aggressive fundraising program.
Moody’s Investors Service revised Iona’s outlook for its Baa2-rated bonds to positive from stable last week, saying the school's strong operating performance may outweigh its reliance on tuition revenue in a competitive market for students.
The New Rochelle, N.Y., Catholic college increased spendable cash and investments by 78% between the 2014 and 2018 fiscal years. The college has healthy liquidity levels compared with its peers, with $136 million for the 2018 fiscal year. That equates to 507 days of cash on hand versus a 2017 median of 57 days for private universities with the same low-investment grade rating, according to Moody’s.
“The college has experienced uncommon growth in financial reserves over the past five years, fueled by positive investment returns, fundraising, and retained cash flow,” Moody’s analyst Pranav Sharma wrote in an April 5 report. “The college's senior management continues to exhibit fiscal discipline, including budgeting for contingencies and depreciation, which has led to healthy operating performance despite volatility in net tuition revenue.”
Sharma said philanthropic support has improved with the average gifts between 2016 and 2018 at $19.5 million, compared with a fiscal 2017 median of $6.7 million for Baa-rated private universities. The college is in the midst of a fundraising campaign that aims to net $150 million through 2022, with $102 million already raised through February.
A push for increased donor support has helped the Iona combat having tuition account for more than 80% of its total revenues. The college has experienced weak student demand reflected in a high selectivity rate of 88% and a low matriculation rate of 9.6%, Sharma said. It also faces demographic challenges, since 75% of students hail from New York State, which has seen declines in high school graduates and also now offers free tuition at public intuitions for families earning under $125,000.
New York’s free public college tuition program, which debuted in 2017, was expected to hurt less selective schools like Iona, according to an analysis conducted at the time by Municipal Market Analytics. The MMA study showed that Iona would only
Iona’s rated bonds, issued in 2012 and 2015 through the Dormitory Authority of the State of New York and the New Rochelle Corporation for Local Development, are general obligations of the college. The bonds are secured by pledged revenues that consist of student tuition and fees equal to a projected maximum annual debt service on the outstanding debt.
Iona, which is located 20 miles outside of Manhattan, had enrollment of around 3,600 full-time students for the fall 2018 semester. Its endowment has climbed to $153 million from $52.4 million in 2011, when outgoing president Dr. Joseph E. Nyre took the helm, Iona officials said.
“Iona College has kept a particularly sharp eye on managing our expenses, maintaining positive cash flow, growing the endowment, fundraising for new capital projects including a new state of the art business school and paying down debts incurred from the exciting capital projects on our campus that include modern residence halls,” Anne-Marie Schettini-Lynch, senior vice president for finance and administration, said in a statement. “We are particularly gratified with Moody’s positive outlook and affirmation of our bond rating as it reflects the College’s continued fiscal discipline and responsible stewardship at a time when so many institutions of higher education face challenging financial headwinds.”
