Ohio-based Kenyon College will jump into the market Wednesday with a refunding as it looks to bolster its books and free up funds for academic programming as it fights for a competitive edge.
The college, using the state of Ohio as its conduit issuer, will price $49 million of bonds to refund 2010 debt. To tap into the market's current low-rate and high demand environment, the college will use a forward delivery structure.
“Because of the volatility in interest rates each day, I would prefer not to provide a number, but it will be a significant amount of savings that will only strengthen the financial picture of the college and will allow us to direct more resources to enhancing our academic program,” Todd Burson, vice president for finance, said in an email.
The series 2020 bonds are secured by a general obligation pledge of the college.
Wells Fargo Securities is the senior manager. Bank of America Merrill Lynch and RBC Capital Markets are co-managers. Blue Rose Capital Advisors in the municipal advisor. Squire Patton Boggs is bond counsel.
The college, rated A2 by Moody’s Investors Service and A by S&P Global Ratings, has been working to improve its financial position after increased spending triggered a one notch downgrade by both rating agencies at the end of 2017. The outlook is stable.
"Similar to other colleges in the Midwest, Kenyon confronts a challenging market environment,” Moody’s analysts wrote in a report. “Regionally, the number of high school graduates is on the decline and competition to attract students is fierce. Favorably, its strong brand, distinctive features, and willingness to invest in strategic priorities provide for some insulation against these competitive challenges.”
The savings will build on the conservative budget practices and effective management of enrollment and financial aid that have contributed to improvements in the college’s operating performance, said Moody’s.
The college said in an investor presentation that it believes its major financial strength has been "management’s ability to generate an operating budget surplus that is allocated annually by the board to other funds and reserves." For fiscal years 2018 and 2019 the surplus was $3 million and $3.5 million, respectively.
Credit challenges for the college include a very high debt burden compared to operating scale and excess cash flow, underscoring the importance of sustaining its solid operating performance. The college has $260 million of debt outstanding and $115 million in derivatives outstanding. The college has no plans to add new debt during the two-year rating outlook period.
“Kenyon's high debt burden compared to its operating scale and excess cash flow will remain a considerable credit challenge,” Moody’s said. “Prospects for materially improving its leverage over the near-term are hindered by very limited debt pay down until fiscal 2036.”
Moody’s said the college has “identified a pool of funds” to address the large debt service burden beginning in fiscal 2036.
Kenyon College was founded in 1824 and is Ohio's oldest private college. The private liberal arts college is in Gambier, Ohio, about 50 miles northeast of Columbus. In fall 2018, it had a total enrollment of 1,846 full-time equivalent students, which includes those studying both on and off campus. In fiscal 2018, operating revenue totaled $119 million.
