Updated: June 26, 2015 at 5:11 p.m.
GW’s total debt load has increased to about $1.9 billion, the highest-ever total, after officials took on additional debt this week.
Officials added $350 million of new debt, and about 94 percent of that total will be used to pay off existing debt, according to a report from Moody’s Investor Service. Still, Moody’s and Standard and Poor’s, the two credit rating agencies that grade the University’s overall financial health, kept their top-tier A ratings despite the added debt and said GW’s financial outlook is stable.
And as officials pay back existing debt, that total will drop to $1.7 billion by the end of July and to $1.6 billion later this fiscal year, University spokeswoman Candace Smith said.
Vice President and Treasurer Lou Katz said in an email that adding $350 million in debt will still benefit GW in the long run because officials can “take advantage of favorable market conditions and low interest rates.”
“Taking advantage of market conditions has helped the university make strategic investments for the long-term health and viability of GW,” Katz said.
The two credit rating agencies also kept GW’s A-level ratings last year after officials added on $300 million debt to lock in lower interest rates and help pay for major construction projects like moving Student Health Service to campus.
Moody’s gave GW an A1 rating, the same as last year, but listed concerns like a debt load that is about 1.4 times the revenue it brings in from day-to-day operations and a “weaker” operating performance in fiscal year 2014.
Ken Rodgers, an analyst at S&P, said the University’s ratio of financial resources to debt is relatively low for the “A” category among its peers. S&P kept its same “A+” rating for GW.
“That’s just one measure,” he said. “The rating incorporates a lot of different aspects.”
GW’s “stable outlook” was also based on an improving operating cash flow margin, the amount of money it generates from operations, which increased from 7 percent in fiscal year 2014 to 9 percent this fiscal year, according to the Moody’s report. GW’s tuition revenue is also growing, according to the report. The University depends on tuition for more than 70 percent of revenue.
“The stable outlook also assumes the University will be able to generate revenue growth and manage expense increases more closely than in the last half decade as expense growth has outpaced revenue growth,” the report said.
Robert Kelchen, an assistant higher education professor at Seton Hall University, said a school is doing “pretty well” if their cash flow margins are above 5 percent.
He added that GW is in the company of many other schools in deciding to refinance existing loans and lock in historically low interest rates.
“For the past five to seven years, colleges have been borrowing essentially as much as they can,” Kelchen said. “It’s been a great time to build new buildings with the interest rates being low and the construction costs being low.”
This post was updated to reflect the following correction:
The Hatchet incorrectly reported that GW’s debt load had reached more than $2 million. GW’s debt load is about $1.9 billion and will decrease as existing debt is paid back. We regret this error.