Greene doubles Colby’s debt for new initiatives

Last month, the College issued bonds totalling 100 million dollars to fund a number of potential capital investments. While this move caused Standard & Poor’s to lower Colby’s credit rating and almost doubled the College’s debt, this decision demonstrates a recent administrative effort to enact immediate change in areas that many members of the community have identified as having the highest need. President David A. Greene cited athletics and the performing arts as areas that need immediate assistance, and capital raised from the bond issuance will contribute to these efforts.
The bond issuance mirrors a similar assumption of debt in 2013 by the University of Chicago, where Greene previously served as Executive Vice President. The University sold roughly 149 million dollars in federally tax-exempt bonds, after which Bloomberg downgraded the University’s credit outlook in January of the following year. However, the institution moved up to a fourth place spot on U.S. World News’s National University Ranking that same year.
With interest rates nearing record lows (and projected to stay low for the foreseeable future) this was an ideal time for the college to issue debt, and Greene is optimistic about the decision. “We know we’re going to be invested in Colby and this gives us the flexibility to be able to invest in those programs at the right time, and that’s why we went into it right now.”
As a non-profit, Colby is capable of issuing non-taxable bonds, but due to similarly low interest rates for taxable and non-taxable debt securities, the College decided to issue taxable bonds. “Most of the time when colleges and universities go into the market, they get non-taxable debt,” Greene said. However, he noted the restrictions associated with this approach: “You have to lay out all the purposes you’re going to use it for, it has to be used within two or three years depending on the kind of debt it is.”
“The reason that they get non-taxable debt is that typically, the rates are better than taxable debt,” he continued. “There are advantages to having taxable debt….it gives you much more flexibility and the funds don’t have to be spent in a certain time period.” The College will make annual interest payments, with the bonds’ principal due in 40 years. Approaching the debt with a long term strategic plan, the Trustees have already sequestered funds to pay both interest and principal when they come due.
“We’ll pay the principal so that we’re not leaving our successors with a major hole to fill,” Greene said. “They’ll have a fund that will grow over that time and will be able to pay off the debt. The beauty of that is that 100 million dollars 40 years from now is worth a lot less, in all likelihood, than 100 million dollars now….For our successors, having that fund over time and being able to pay that off…the value of [which]—in real terms—will be significantly less.” The College borrowed the bonds at 4.25 percent.
Historically, the college has been fiscally conservative and debt averse in its approach to financial decision-making. According to Vice President and Secretary of the College Andrew C. McGadney, who arrived on campus this past August, “This decision speaks to the College’s ability to take on debt. It’s a testament to the administration and a vote of confidence for the institution.”
As the College begins to look into potential investments for these additional funds, Greene is already making an effort to ensure that future conversations are inclusive as they can be. “We’ve tried to ensure that there are students on the committee that are working on these issues,” Greene said. “We also want to make sure that the staff voice is being heard. It hasn’t always been included as often as it needs to be. During this planning period, we need to take an integrated community approach.”
As part of a larger comprehensive financial plan, both Greene and McGadney noted that the new debt will help to provide roughly five million dollars in financial aid over the next four years. In addition, the College has already planned an open campus conversation on the Performing Arts facilities project, according to an Official Notice from Provost and Dean of Faculty Lori Kletzer. A similar opportunity to discuss the athletics facilities project is forthcoming.

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