BRADENTON, Fla. - Standard & Poor's lowered the bond ratings of Virginia's Sweet Briar College further into junk territory due to the legal efforts of supporters to keep the ailing institution open.
S&P June 18 downgraded the college's ratings two notches, to CCC from B-minus, because a recent court order blocked the closure and restricted the college's access to certain funds.
The lower rating reflects S&P's view that Sweet Briar's obligations are vulnerable to nonpayment, according to analyst Sussan Corson.
The action affects $16.5 million of 2006 bonds issued by the Amherst Industrial Development Authority. The outlook is negative.
The college also has $9 million in unrated bank bonds issued in 2011. All debt is secured by an unconditional general obligation pledge.
"The ongoing litigation adds to uncertainty related to the timing of a potential closure and the college's ability to manage its remaining assets to meet its liquidity covenants and contingent liquidity obligations," Corson said.
On June 9, the Virginia Supreme Court ordered a lower court judge to take another look at legal efforts by Amherst County Attorney Ellen Bowyer, alumnae, and faculty to stop the 114-year-old women's institution from being shuttered. Litigants want a special fiduciary to assess and run college operations.
Officials with the private liberal arts college announced earlier this year that "insurmountable financial challenges" would force the college to close after the summer session ends. A temporary injunction currently prevents the college from shutting down.
"In our view, Sweet Briar is likely to face a liquidity crisis and nonpayment in the near term should a covenant default or other events of default under the documents trigger principal acceleration on bonds outstanding," Corson said. "Pending litigation could continue to delay the college's timely access to temporarily restricted assets that it might need to accommodate potential principal acceleration."
The college made its regularly scheduled debt service payments through March, S&P said. Its bank bonds include default provisions that could trigger principal acceleration, including the college's covenant to maintain liquid assets that cover debt 1.1 times.
