The financial outlook for two Historic Quaker colleges has taken a serious tumble.
Guilford College in North Carolina and Earlham in Indiana, have been moved down from “stable” to “negative” status by Standard & Poors, a financial/credit rating agency.
In an April 29 statement, the agency said, “S&P Global Ratings revised the outlooks to negative from stable and affirmed its ratings on certain U.S. not-for-profit colleges and universities . . . due to the heightened risks associated with the financial toll caused by the COVID-19 pandemic and related recession.”
However, the unexpected pandemic’s impact was not the only factor considered. S&P added that
“colleges and universities affected by these actions include primarily those with lower ratings (‘BBB’ rating category and below), but also those entities that, in our opinion, have less holistic flexibility (from both a market position and financial standpoint) at their current rating level. Although liquidity, as measured by available resources compared to debt and operating expenses, was the primary metric assessed, an institution’s overall credit profile, including draw, selectivity, matriculation rates, operating margins, and revenue diversity, was also considered. . . .
A negative outlook reflects our view that there is at least a one-in-three chance that operating and economic conditions will worsen to a degree that affects the ability of the college or university to maintain credit characteristics in line with the current rating level.”
Earlham College in Richmond Indiana was on a separate list of 50 colleges that S&P specifically excluded from the new list because, they said, the fifty schools “already carry a negative outlook prior to this event-driven outlook revision.” [Emphasis added. ] Earlham undertook substantial budget and staff cuts last year.
S & P noted that the impact of the pandemic on the hundreds of colleges and universities it monitors has been both sudden and massive:
As of Dec. 31, 2019, only 9.2% of our rated higher education institutions carried negative outlooks. Year to date and inclusive of these outlook revisions today, that percentage has risen to 38%.”
While the abrupt quadrupling of its tally of virus/recession threatened schools is shocking, S&P pointed out that financial strains were already visible at many U. S. colleges:
“Our U.S. higher education ratings range from ‘AAA’ to ‘CC’, with approximately 41% of our ratings in the ‘A’ category, and 31% rated ‘BBB+’ or below. Approximately 8% of our rated universe is in the speculative-grade category. Both the lower investment-grade (‘BBB’) rating category and non-investment grade categories (‘BB+’ and below) have grown over the past few years, as more regional institutions have been increasingly challenged by enrollment and operating pressures.
S & P ratings deal with general credit-worthiness. But what about the immediate future? In particular, what about the fall term? Of the two Quaker colleges, Guilford announced just last week that
Guilford is moving forward with plans to open campus and provide in-person instruction for fall 2020.