College credit rating dropped

Moody’s Investors Services, one of the country’s leading credit-rating agencies, has lowered the College’s bond rating to AA1 because of a new $113 million offering. College officials do not believe the downgrade to Moody’s second-highest rating will seriously impact the College’s financial situation in any way, but endowment losses and poor investment returns have increased the bonds’ impact.

“We expect almost no increase in interest rates as a result of the downgrade by Moody’s,” said Christopher Wolf, manager of Investments and Treasury Operations. “We had already been at the second highest rating from Standard and Poor’s (S&P) and they confirmed that rating recently.”

When an institution’s bond rating is split, as it was with Moody’s and S&P’s ratings, interest rates generally reflect the lower bond rating.

“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,” Moody’s analyst Gabriel Topor told Reuters.

The $113 million offering will include $100 million in new bonds as well as a $13.4 million refund of older bonds that are at a higher interest rate, Wolf said. The total debt after the offering will be $173 million. “In absolute dollar terms, this will be the most debt the College has had,” Wolf said. “However, it is important to compare the debt we have to our assets, and in those relative terms, we have had this amount of debt outstanding before.”

The College decided to make the bond offering because of some of the lowest interest rates in 40 years, which presented a sound business opportunity: “We continue to manage the finances of the College in a conservative fashion and we are issuing new bonds at some of the lowest rates in 40 years,” Wolf said.

Wolf also indicated that the bond offering was not the result of the poor economic climate affecting donations to the College, but rather as a “smart” decision to take advantage of the low rates. Nor does the offering indicate weakness in donors giving to the College: “We still enjoy tremendous support from our alums and we think our strategic plan has really resonated with donors. We expect to continue to receive necessary and important financial support from donors.”

The new bonds are split into two categories. Series 2003H will be revenue bonds and Series 2003I will be variable-rate revenue bonds. Series bonds “means they are composed of a series of maturities throughout the life of the loan. For example, the Series H bond principal gets paid back in part each July 1 for the next 30 years,” Wolf said.

Generally, in an open market transaction such as this bond sale, mutual funds that specialize in municipal bonds typically purchase a large amount of the offering. Wolf said he would not be surprised if a number of Williams alums purchased bonds as well, although he does not have the details of the sale.

Williams’ strong position in the higher education market puts the new rating at stable, Moody’s told Reuters. Wolf does not know when or if the College’s rating will be returned to AAA. “We are more interested in making smart choices financially for the College than trying to maintain a particular rating. We don’t want the tail to wag the dog, so to speak,” Wolf said.