Debt refinancing announcement
January 28, 2015
Wartburg College is poised to save $2 million this fiscal year as a result of planned refinancing of its long-term debt. The debt service savings will continue, at a rate of $135,000 per year, through 2037.
The college anticipates refinancing the debt in early March, subject to market conditions. Having no plans to take on new debt, the college’s debt burden is expected to decline over time due to normal amortization.
The college’s Board of Regents has considered refinancing since the bonds became callable in October 2013. Favorable interest rates prompted the college to seek a review of its bonds by Fitch Ratings, an independent rating agency.
Bond ratings provide investors with more information about their investment and a potential lower interest rate for the seller when compared to a non-rated bond issue.
Fitch affirmed the College’s BB rating Wednesday, the same rating as the existing Series A bonds (existing bonds previously were split into a rated Series A and a non-rated Series B). In addition to the interest savings, the reissuance also reduces administrative time, saves administrative costs, and simplifies the bonds for investors.
In its report, Fitch noted the college vastly improved margins over the past five years. It also pointed out that balance sheet resources increased in fiscal 2014 as a result of investment returns and gifts and contributions. Cash and investments totaled $75.6 million in fiscal 2014, up from about $71.7 million in the prior year.
“Consequently, available funds, defined as unrestricted cash and investments, increased slightly to $33.1 million in fiscal 2014 from $31.8 million in fiscal 2013,” the report indicated. “Wartburg’s available funds ratios remain strong for the rating category and indicate some cushion for operations.”
The college’s endowment returned 11 percent in fiscal 2014, increasing its value from $52.4 million the prior year to $59.1 million this year.
Fitch also praised the college’s progress in raising more than $60 million of its $75 million Transforming Tomorrow campaign goal.
As a highly tuition-dependent institution, Wartburg’s three-year trend of declining enrollment was a notable factor in the bonds receiving an updated outlook of Negative rather than Stable.
At its last meeting in October, the Board of Regents took strong action to encourage stabilizing enrollment. At that time, the regents approved a historically low 2.6 percent increase in tuition, fees, room, and board for 2015-16, making the rate increase the lowest by percentage in 25 years and the smallest by dollar in 13 years. The regents also indicated intent to hold annual increases for the next several years to less than 4 percent. College officials expect the lower increase will positively impact retention in the short term and retention and recruitment of new students in the long term.
The college’s efforts to slow or reverse the discount rate—the difference between what students actually pay to attend and the institution's sticker price—are also key to improving net tuition revenues. The college projects no increase in the discount rate this fiscal year.