University’s debt reaches all-time high

The bonds will help pay for campus construction projects, Executive Vice President and Treasurer Lou Katz said.
Lou Katz, the University’s executive vice president and treasurer, said GW will issue $300 million in bonds to help pay for campus construction projects and refinance existing debt. Hatchet File Photo
Updated: July 28, 2014 at 11:25 a.m.

GW’s debt will total an all-time high of $1.7 billion after officials announced last week that they will issue $300 million in bonds to cover construction projects across campus and refinance existing debt.

The debt load is now about $220 million more than the University’s endowment. The credit rating agency Standard & Poor’s gave GW an A+ rating in a report released two days after the announcement, and Moody’s Investor Service gave it an A1 rating. The agencies gave GW the same ratings last year.

The loans will go toward the $130 million residence hall District House, renovating the Marvin Center to make room for a two-floor health center and revamping the Hall on Virginia Avenue.

District House will fit nearly 900 sophomores and juniors. Courtesy of the Office of Campus Development
District House will fit nearly 900 sophomores and juniors. Photo courtesy of the University.

S&P has cautioned in the past that if the University takes out more loans to cover expansion plans, it “could consider a negative outlook or lower rating.”

Executive Vice President and Treasurer Lou Katz said in a release that the University will look to refinance portions of its debt within the next two years.

“This bond sale is part of our overall financial strategy to refinance debt at lower interest rates and invest in capital projects that are important to the University,” Katz said in the release.

Historically, GW has only paid off the interest on its debt each year without paying off the total debt it owes at the same time. Last year, the interest payments alone cost an estimated $60 million.

Yearly debt payments have more than doubled since 2003, and the financial burden is one of the strongest forces keeping the University tied to tuition for 62 percent of its revenue.

Katz said GW is in “solid financial health.” He pointed to endowment growth and the University’s ongoing efforts to cut costs and grow revenue with projects through the Innovation Task Force.

This is the second time the University has has taken on $300 million in debt. GW first took out that largest-ever total in 2012 as it recovered from the recession.

Both credit rating agencies noted last year that the difference between GW’s operating costs and revenue was about $187,000 – a sliver of the $16 million cushion it had in 2012.

This post was updated to reflect the following corrections:
The Hatchet incorrectly reported that GW owed more than it had in the bank. While the University’s debt load is greater than its endowment, it is not greater than GW’s assets. The Hatchet also incorrectly reported that yearly debt payments have quadrupled since 2003. They have actually more than doubled. Finally, The Hatchet reported that GW had already issued the bonds, but the process is ongoing. We regret these errors.

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