Colleges in Dire Financial Straits

[selecter]

That's from '21. It has since been downgraded again:
https://app.researchpool.com/provider/moodys-investors-service/moodys-downgrades-hartwick-colleges-ny-issuer-and-revenue-bond-ratings-rDW2bGNu47

[apl68]

That's from '21. It has since been downgraded again:
https://app.researchpool.com/provider/moodys-investors-service/moodys-downgrades-hartwick-colleges-ny-issuer-and-revenue-bond-ratings-rDW2bGNu47

So, as of about two years ago they owed nearly $32,000 for each of their 1,100 (maybe) students.  That sounds like an awful lot, especially for a tuition-dependent school that doesn't seem to have a lot of deep-pocketed alumni who might be able to help bail them out.  And they've already spent down much of the endowment, and presumably don't have a bunch of land or something somewhere that they could sell.

[selecter]

Yep. Time of death hasn't been called yet, but ... they are toast.

[jimbogumbo]

Hartwick's endowment was about $77,000,000 in 2019. Debt of over $32,000,000. Woof.

[kaysixteen]

So, why couldn't HW just liquidate $77m of endowment, nuke its current debt load, and try to find a path forward using the forty five million dollars it would still have left?   If, otoh, the trustees there chloriformed the school now, what would happen to that 45 million, plus the campus physical plant, then?

[dismalist]

So, why couldn't HW just liquidate $77m of endowment, nuke its current debt load, and try to find a path forward using the forty five million dollars it would still have left?   If, otoh, the trustees there chloriformed the school now, what would happen to that 45 million, plus the campus physical plant, then?

Excellent point. They can't take the $45 million home, on account it's a non-profit, but they can spend it! Plenty of fun and games until it's gone. They could build a golf course.

[Hibush]

So, why couldn't HW just liquidate $77m of endowment, nuke its current debt load, and try to find a path forward using the forty five million dollars it would still have left?  If, otoh, the trustees there chloriformed the school now, what would happen to that 45 million, plus the campus physical plant, then?

Excellent point. They can't take the $45 million home, on account it's a non-profit, but they can spend it! Plenty of fun and games until it's gone. They could build a golf course.

Hartwick's trustees include a number of economics grads, and several whose profession include finance, bonds and budgets. Have they been contributing useful ideas? They don't seem to have made the '21 Moody's recommendations, based on the subsequent reports.

They don't appear to live close enough to one another to golf together.

[selecter]

I'd guess everything that's left of the endowment is restricted. Colleges can ask to break those restrictions, but ... that accelerates the downward velocity in other areas.

[treeoflife]

It seems that the closure rates since covid are stable. This is the new normal.

[apl68]

I'd guess everything that's left of the endowment is restricted. Colleges can ask to break those restrictions, but ... that accelerates the downward velocity in other areas.

That was my thought.  Maybe there's a little liquid endowment left, but probably not close to what they owe.  And of course even if they could suddenly clear the debt, they've still got that structural deficit to address.

[Ruralguy]

I would guess (probably can find it somewhere) that their remaining endowment is mostly scholarships. If they have any endowed professorships (probably if their endowment is sub 100 mill by a lot, it means they don't have many professorships like that), then maybe that. Perhaps some endowed funds for various departments and programs. Liquid/semi-liquid funds are probably down to a few million dollars, maybe.

[kaysixteen]

IOW, these restrictive endowment lines cannot be altered even if the school would go belly-up without recourse to the funds?

If this is true, and that, say $50m of the 77 is earmarked specifically for scholarships and endowed professsorships, since it cannot be diverted to other uses in order to save the school, then when the school does indeed go belly-up, what happens to funds like that?

[Ruralguy]

Its a good question, and perhaps someone with more specific knowledge can give a more detailed answer, but I believe that most big donors (millions of dollars) have this kind of contingency written into the original agreement. So, upon dissolution of the college, there needs to be a discussion with the original donors or their heirs, or foundation reps., etc.. Some donors might allow for any remining funds to be used for whatever, but others might want it returned on some sort of schedule. I believe that is also what is done if someone donates for a building with 50 year naming rights, but then someone else comes in after only 40 years to improve the building. Then, some money must go back to the original donor (not by law, but just by the sort of agreement they usually come to for these things).

[sinenomine]

Or, if a school is looking to be acquired by another one, the endowment is part of the merger. That happened when the school where I work acquired one that was in danger of closure.

[FishProf]

When we offered a teach-out plan to a neighboring school that went defunct, we took on their scholarship endowment until all their students had graduated.  I do not know what happened to any residual money after that.