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Amherst to issue $100 million in taxable bonds for working capital


Replies to: Amherst to issue $100 million in taxable bonds for working capital

  • johnwesleyjohnwesley - Posts: 4,610 Senior Member
    ^^I'm sorry, Interesteddad, but the term "out of equilibrium" doesn't even begin to describe Amherst's financial problems.
  • interesteddadinteresteddad Registered User Posts: 24,177 Senior Member
    That's because Amherst is not now, nor has it been, "out of equilibrium". As near as I can tell, Amherst has been spending towards the low end from its endowment -- as should be the case during boom years of rapid endowment growth.

    Amherst's endowment is so heavily invested in partnerships that can't be priced and can't be sold that it is very difficult to predict where this will all finally shake out. It could be anywhere from moving back a few rungs at the top of the ladder to a more dramatic repositioning.

    Middlebury's has no cushion. It has to cut spending, cut it big, and cut it now. That's why you are seeing more dramatic moves. Williams and Swarthmore have the luxury of phasing in the big cuts over a couple of years. They are just doing the low hanging fruit (salary freezes, stopping capital improvment projects, and so forth) so far.
  • johnwesleyjohnwesley - Posts: 4,610 Senior Member
    Middlebury may not have Williams' or Swarthmore's "cushioning" as you so aptly (and, frequently) put it. But, it has a lot fewer rungs, as you put it, to move in terms of repositioning. At worst, this period of uncertainty is a lost opportunity to move up a few rungs -- and, again, that's putting it in your terms which seems to put endowment size at the top of everything.
  • interesteddadinteresteddad Registered User Posts: 24,177 Senior Member
    Unlike Amherst, Swarthmore, Williams, Wesleyan, Haverford, Wellesley, Grinnell, Pomona, Smith, Bryn Mawr, Bowdoin, and many others, Middlebury does not make their annual financial reports publicly available on their website. Therefore, it is difficult to know much about their financial position. I did see their presentation to staff the other day. I think they are working diligently to cut costs.

    I think they are probably vulnerable because of mistimed expansion (enrollment, campus building, language institutes, and Monterrey). As they tried to digest all of the expansion and bring their endowment spending back down to equilibrium, a recession was the last thing Middlebury needed.
  • smartalic34smartalic34 Registered User Posts: 789 Member
    interesteddad: can you comment on Wesleyan's financial situation? they have a smaller endowment than many of the other top LACs, and their trustees just met this past weekend. how does Wes sit compared to, say Amherst, Midd or Bowdoin?
  • arcadiaarcadia Registered User Posts: 2,542 Senior Member
    Their strategic plan called for finally getting down to their targeted spending rate (5.5% from memory) by the current fiscal year. That obviously is not happening.

    Middlebury accomplished its goal of bringing the spending rate to the target level of 5% this past year.

    From the college's website:
    Normally, the boards of trustees of colleges and universities set a ceiling of 5 percent spending from the endowment each year to supplement an institution’s annual budget. In 2001-2002, the Middlebury board allowed the endowment spend rate to increase beyond the 5 percent limit for a period of seven years, rising to a high of 7.1 percent, to finance the building projects that were then under way or were recently completed (Ross Commons, Atwater Commons, Bi-Hall, the new library, athletic facilities). We have worked diligently since that time to bring the spend rate back down to the 5 percent level this fiscal year. Spending more than 5 percent of the endowment now when investment returns are at their lowest point in many years would jeopardize the College’s long-term financial viability. The option to raise spending from the endowment above the 5 percent ceiling once again represents a lever of last resort, taken only after measures to control costs have proven to be insufficient to balance our budget.

    Also, the college is at the $300 million mark for the current $500 million capital campaign. I'll bet they're glad they began the "silent" phase when they did.

    Also, read this article from last weeks "Campus":

    College finances hold up, for now - News
  • interesteddadinteresteddad Registered User Posts: 24,177 Senior Member
    Wesleyan's biggest challenge is a relatively small per student endowment. Here's a list, prepared by Wash and Lee University of top LAC per student endowments at the top of the market (June 2007). The only one they are missing (offhand) is Berea, which should have been slotted somewhere between Wellesley and Williams.


    Wesleyan's endowment spending rate has been higher than their policy range (7.1%, 6.4%, and 6.1% in 06, 07, 08 respectively). They will have to cut endowment spending immediately. That's really their biggest challenge. Swarthmore plans to go up to 5.7% next year (the highest in school history) from 3.7% last year to cushion the cost-cutting, allowing some of the harder cuts to be phased in. Starting at 6.1% spending last year, Wesleyan can't do that.

    Nothing stands out as being a particular problem. They've got cash call commitments of $165 million, maybe a bit high, but in line percentagewise with Swarthmore and Williams.

    I think that increasing enrollment by 120 more students is problematic for Wesleyan as increased enrollment (like at Middlebury, Oberlin, Smith, etc) is what diluted the endowment in the first place.

    Wes is more dependent on tuition revenue than the big endowment schools. They do pretty well maximizing student revenue, averaging $32,000 per student in tution, room, board, and fees. This is not quite as high as the schools that really play the "full pay customer" game hard (Bowdown, Vassar, Haverford), but it's a strong number, especially given the enrollment numbers.

    The big question mark for all of these schools is what's going to happen to that number (average net tuition). If that number holds (even by quietly being just a "little more need aware"), then it will just be a predictable scaling back of spending to a somewhat less lavish level with many of the frills cut out. If the bottom falls out of the tuition/enrollment equation, then it will get ugly. That's why everyone is kind of holding back to see what happens with the current pile of applications.
  • interesteddadinteresteddad Registered User Posts: 24,177 Senior Member
    Arcadia, I believe that Middlebury's financial plan called for them to get endowment spending down to the target in Fiscal Year 2009 ("this year"). Of course, that is now very unlikely.

    The problem is that endowment spending should be at its lowest percentage in a period of rapidly rising endowment value, such as we have seen for the last five or six years and should increase to the high end of the range when endowment values are falling. That's why Swarthmore and Yale were at 3.7% and 3.8% last year.
  • arcadiaarcadia Registered User Posts: 2,542 Senior Member
    The problem is that endowment spending should be at its lowest percentage in a period of rapidly rising endowment value, such as we have seen for the last five or six years and should increase to the high end of the range when endowment values are falling.

    Yes, Middlebury overspent during the "fat" years, but they also have a new state-of-the art library, a new science center, three new dorms, three new dining halls, a new pool and ice hockey rink, a new center for the humanities, a newly renovated student center, and a new biomass plant to show for it. Excessive? Perhaps. But these new facilities are attracting a lot of attention, and IMHO are party responsible for the huge increase in applications over the past decade. And from the sound of things, Middlebury views exceeding the 5% endowment spending target as a measure of last resort. Does that mean they won't exceed it? Of course not. But they realize the significance of it and have certainly learned from past mistakes.
  • johnwesleyjohnwesley - Posts: 4,610 Senior Member
    Smartalica - another way of looking at it is, that Wesleyan has an income stream of roughly $172,000,000.00 in unrestricted, tax-free, and highly predictable funds. That's what it collects in tuition and fees minus financial aid every year. If Amherst had that kind of cushion, I assure you it wouldn't be borrowing $100,000,000 in taxable bonds just to pay its staff and run the copy machines.

    What Interresteddad is describing is a kind of feedback loop whereby a high endowment is an end in itself and every decision is made with that as its endpoint as opposed to what is good for the college as a whole. For example a good argument could be made that rather than borrowing $100,000,000.00 to pay for a set of new dorms or a new natural history museum, Amherst could have spent the same money directly from its pre-meltdown endowment -- and saved itself a 30% loss on those funds.

    But, that's just an example.

    Interesteddad also talks about keeping the endowment "draw" as low as possible (3.5% in the case of Swarthmore) all for the sake of that sacrosanct endowment per student ratio. That's all fine and good if a college has no particular long-range goals. But, what if a college, a 1,300 all-male LAC like Wesleyan was forty years ago, has a choice between maintaining a low draw and a high endowment per student ratio and lowering that ratio by expanding to include another 1,300 of the most interesting and highly qualified women in the country? Wouldn't you at least *consider* that a worthy trade?

    And wait! There's more! If that's not enough, how about providing seed money for Ph.D programs in Chemistry, Biology, Physics, and MBBC, thus allowing professors to conduct NIH and NSF-level research all year round (instead of just during the summer.)

    And, wait! There's still more! How about we throw in one of the ground-breaking Ethnomusicology programs in the country?

    Still not convinced? How about we throw in another ground-breaking program in Film Studies for good measure? There are a lot of things I would not want to "give back" if I were Wesleyan just for the sake of a better endowment per student ratio.
  • interesteddadinteresteddad Registered User Posts: 24,177 Senior Member
    OK. Then if you want to compare Wesleyan to big schools, compare it to Dartmouth and UChicago and Rice and stop the charade that it's a liberal arts college.

    BTW, Amherst went co-ed without increasing to 3000 students.

    BTW2: Amherst didn't borrow $100 million to pay staff. It borrowed $100 million to meet its cash call commitments from private partnerhips. I think I've been pretty clear what I think about that.
  • interesteddadinteresteddad Registered User Posts: 24,177 Senior Member
    And please, let's not throw out "but we have a film studies program". All colleges have programs that others don't. For example, I don't suppose that you want to talk much about Arabic at Wesleyan (one visiting lecturer with a Masters degree) or Linguistics or Engineering. Oh, wait. Building an Arabic department might be part of a "long-term plan" for a college, right?
  • johnwesleyjohnwesley - Posts: 4,610 Senior Member
    we were wondering where all that money you saved on football would wind up.
  • interesteddadinteresteddad Registered User Posts: 24,177 Senior Member
    If you look at the spread of athletics budgets among the top LACs ($6+ million at Williams, $2.5 million at Pomona and Swarthmore), there should be a lot of trustees taking a good long look at varsity athletics (especially football) at small liberal arts colleges. Funny...it's never mentioned.
  • interesteddadinteresteddad Registered User Posts: 24,177 Senior Member
    I spoke too soon. I guess the budget cutting is getting serious. Schools started whacking varsity sports this week. Pepperdine announced the end of men's track and women's swimming. Agnes Scott announced the end of women's swimming and diving.

    Amherst could snooker Williams by announcing the end of football, men's hockey, and participation in NCAA post-season play to "focus on academics and campus diversity". I believe that half of the NESCAC would follow Amherst's leadership.
This discussion has been closed.