As anyone who has opened a savings account recently can tell you, interest rates are at rock bottom. While bad for savers, this is a prime opportunity to borrow money at a low rate, which Kenyon is doing this month with a refinancing of up to $85 million worth of debt with the issue of new general revenue bonds.
The expected sale date of these new bonds is Oct. 25, according to Moody’s Investor Services.
Essentially, Kenyon is issuing new bonds with low interest rates in order to pay off existing bonds that carry higher rates of interest. “It’s no new money,” Vice President for Finance Todd Burson said. “It’s all refinancing old money, just to a lower interest rate.”
Corporations, including non-profit corporations like Kenyon, take on debt with bond sales; when a corporation sells a bond it makes a contract with the buyer, exchanging immediate money for an obligation pay back the money, plus a series of interest payments, at a later date.
Moody’s announced the refinancing on Oct. 13, along with an affirmation of a “stable” outlook and an A1 rating on Kenyon’s total debt, which is in the range of $190 million. Better known for rating for-profit companies and issuing data on publicly traded companies, rating agencies like Moody’s also the review finances of nonprofits, including institutions of higher education.
The new bond issue was designed to take advantage of low interest rates and will be replacing bonds remaining from a 2006 issue as well as up to $70 million of Kenyon’s 2010 bond issue, according to Burson.
Interest rates have remained low in the years since the 2008 global financial crisis, and many colleges are taking advantage of the low rates to refinance their debts, Burson said.
“At the end of the day,” he said, “we’re trying to refinance some debt so we can lower our interest payments and save the College some money.”
In addition to announcing the new bonds, Moody’s affirmed its rating of Kenyon’s current debt load at A1 on a rating scale that ranges from Aaa to C, with the numeral one indicating that Kenyon is on the higher end of the single-A ratings. Ratings indicate the likelihood that debts will be repaid based on the fiscal health of the institution. The Moody’s “General Credit Rating” guide explains a single-A rating as “considered upper-medium grade and subject to low credit risk.”
Kenyon’s A1 rating is based on “good strategic positioning as a highly selective liberal arts college … solid balance sheet reserves, and strong philanthropic support,” according to research supplied by Moody’s. Analysts from Moody’s were not immediately available for comment.
Moody’s cited challenges for Kenyon, including competition with wealthier schools and a high debt load. Burson said that, every year, the College will hold conference calls with Moody’s and Standard & Poor’s Financial Services LLP — another rating service that Burson said also rated Kenyon A1 — and discuss every facet of the College, from student enrollment to fundraising efforts, to determine the rating.
The A1 rating is in line with Kenyon’s peer organizations, Burson said.
Kenyon will periodically issue bonds to fund capital projects, such as new buildings. The 2006 bond issue was a new issue and helped finance the renovation of Peirce Dining Hall, according to Burson, as well as the construction of other buildings.
Burson said the interest payment on Kenyon’s bonds is always changing, but is lower than 5 percent. The College pays approximately $9.7 million to service its debt each year, though he said this should drop soon, as Kenyon has recently paid off its 2003 series bonds.