New loan brings University debt to $1.1 billion

University officials borrowed an additional $100 million late last month, bringing the University’s debt to $1.1 billion, the largest amount in University history.

Executive Vice President and Treasurer Lou Katz said GW took out the loan to give the University more cash on hand, bringing the total amount of cash on hand from $300 million to $400 million.

“[The amount was borrowed] just to add to the liquidity of the institution,” Katz said.

The debt level now stands just $100 million shy of the endowment fund, which was $1.2 billion as of Dec. 31, although Katz said $250 million of the debt pertains to debt on endowment properties.

The University’s debt crossed the $1 billion threshold over the summer, after approaching it for more than a year, due to a $50 million loan the University took out for liquidity purposes as well.

Despite the high level of debt, Moody’s Investors Service and Standard & Poor’s – two leading financial ratings agencies – gave GW positive ratings for taking out the additional bonds.

Moody’s assigned the University an A1 rating – its fifth-highest out of 10 possible “investment grades” and the same one GW received over the summer – in a report about the additional borrowing and reaffirmed that the financial outlook is stable.

GW’s strengths include its increasing admissions selectivity, which leads to a steady revenue stream from tuition, recent awards to sponsor research, and its “large base of financial resources,” including philanthropic growth, according to the report.

Some of the University’s challenges lie in its operating performance which the report said would “continue to be weak in the near-term,” as GW increased its investments in programs, faculty and financial aid during the recession while other institutions focused instead on reducing costs.

There are no plans for any additional borrowing this fiscal year, which ends June 30, Katz said.

Gerald Hanweck, a professor of finance at George Mason University’s School of Management, called the debt load “a lot of money for a private university of GW’s size.”

Even though the $100 million was borrowed at a low interest rate, Hanweck said interest rates are expected to start to rise during the summer, which would lead to the University paying more to service the loan.

Katz previously stressed the University will continue to pay a significant portion of the debt through non-tuition sources, such as student housing revenue, but Hanweck said GW is limited by a number of factors.

“GW isn’t going to have a lot of growth potential in terms of numbers of students, and secondly it doesn’t really have anything more than the endowment other than the alumni and student tuition to pay off these debts to provide cash flow,” Hanweck said. “That’s a pretty sizable burden on the University.”

The University does receive a payout of money from The Avenue, but Katz said that revenue would be used in part to fund construction of the Science and Engineering Complex, a $275 million project that is expected to begin this summer.

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