This Week In College Viability (TWICV) - Special Edition: The role of bond holders & Lake Erie College
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Special Edition Podcast of TWICV.
Special Edition Podcast of TWICV.
This Small College Was Out of Options. Will Its Creditors Give It a Break?
Re: Lake Erie College in Ohio
By David Jesse and Dan Bauman NOVEMBER 13, 2023
Credit to David Jesse and Dan Bauman for exceptional reporting and Schuller for opening up with the LEC story. Trust me, she is one of the few college leaders brave enough to share, in real time, the challenges her college is facing with its bond holders – even though it is going to result in some level of self-fulfilling prophecy.
Really good story and timely story about the hidden financial time bomb for many private colleges.
Lake Erie College Jennifer N. Schuller, President in August of this year promoted from vice president of advancement
It wasn’t until April of this year that board members became more and more concerned about what looked like financial stress, officials said. They hired an outside firm to look under the hood. The findings were shocking.
History from the Chronicle reporters:
In 2019, Lake Erie issued just under $30 million in revenue bonds. That money was targeted for refinancing existing debt and upgrades to campus facilities, including the school’s equestrian center, its centerpiece program.
History and . . . .Go to the data From CV App: 14-21
Tuition & fee revenue flat down 400K
FTE enrollment: Down year after year. (Image from my notes does not paste to podcast software)
Here is a link to the 2023 Executive Analysis version of the College Viability app. (I will throw in the public college version of the app for an end-of-the-data year subscription rate Both the public and private college apps for a total $947. They retail at $1,500 each.)
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Here is a link to the 2023 Executive Analysis version of the College Viability app. (I will throw in the public college version of the app for an end-of-the-data year subscription rate Both the public and private college apps for a total $947. They retail at $1,500 each.)
Get these podcast updates sent directly to your inbox.
4 and 6 year grad rates both about @ 40% and 45% respectively
INSTITUTIONAL GRANTS flat at $14M 2014-2021
Endowment about $33M (down just a couple of bucks over 8 years.)
“It is believed that there was a continued effort to shelter all stakeholders from LEC’s challenged and declining financial position, funds were somehow located to fill in the gaps, new initiatives were promised but not enacted, and unachievable projections presented,” the college wrote in a June 30 slideshow to its bondholders. “These combined efforts made it difficult to discern the financial stress until that financial stress became so great it could no longer be hidden.”
The issue here may or may not be the college itself, but it is certainly about a BOT that was absolutely clueless about an organization for which they accepted fiduciary responsibility. This continues to happen and will continue to happen even more without changes to the mostly casual relationships too many BOT’s have with the colleges they, in theory, oversee.
Couldn’t pay vendors Out to as much as 178 days – that’s 6 months
Had to get bond holders to cut them a break on payments
Bond holders typically get dibs when an organization (like a college) closes. LEC is asking their bond holders to take a back seat to other financial stakeholders. Now remember, that the banks and companies holding these loans/bonds have a fiduciary responsibility to their customers – just as the college leaders have their own fiduciary responsibilities.
With some exceptional reporting, David Jesse and Dan Bauman describe the business challenge that the bond holders for LEC have.
In the end, debt financing is ultimately meant to generate a return on investment for creditors. The dilemma for creditors is: Would a payment pause actually allow Lake Erie College to eventually make good on all the principal and interest it would owe across the next 30-plus years? Or, will creditors in effect be allowing Lake Erie to just forgo paying down its debts right up until the restart of repayment forces the institution to close, thereby leaving the college’s bondholders to duke it out with other creditors in bankruptcy court for the bondholders’ share of the college’s assets.”
You and I borrow ……………………………. The dog ate my checkbook or other rationalizations are not likely to be successful. The same is true for any business organization like colleges.
In the end, the rep for the bond holders said: “Nope”.
“I can say with confidence — we’re going to make it,” Schuller told The Chronicle. She has to say that. . .
I don’t know how many students and their families in the LEC region read the Chronicle. Probably not enough. But bad news does tend to percolate out. This kind of news will most likely result in a self-fulfilling prophecy. How many families, when most college decisions are made on the margins, will say ‘not LEC’ next April and if its still around subsequent Aprils.
Scary thought: What happens if bond holders become even more concerned with the financial plighy of colleges and call their bonds in immediately.