BRADENTON, Fla. — Standard & Poor's downgraded bonds issued for Sweet Briar College to B-minus from BBB because the 114-year-old private, rural college in central Virginia plans to close.
S&P also placed the college's 2006 educational facilities revenue refunding bonds on CreditWatch with negative implications Tuesday. The bonds were issued by the Amherst Industrial Development Authority.
Citing "insurmountable financial challenges," the board of directors for the all-women's college voted Feb. 28 to close after the summer session ends Aug. 25. About 700 students are enrolled in the school, about 13 miles south of Lynchburg.
The seven-notch downgrade by S&P affected $16.52 million in bonds as of June 30, 2014. The bonds have maturities to 2030. The college also has a $10 million bank-qualified loan.
"We believe the college's balance-sheet ratios are strong and sufficient resources are on hand to pay debt service," said analyst Sussan Corson. "However, we believe certain event of default provisions in the agreements that allow for principal acceleration, and the process of winding down operations at the college, create significant uncertainty about the timeliness and immediate availability of these resources."
The direct loan provisions allow for immediate acceleration at this time, and the 2006 bond documents include provisions allowing for immediate acceleration of the principal once operations cease, Corson said. An unconditional general obligation pledge of the college secures all debt.
As of Dec. 31, 2014, Sweet Briar had $84 million in total endowment, of which about $20 million was unrestricted. College officials reported that there are no unfunded pension or other post-employment benefit obligations, S&P said.
College officials did not immediately respond to a request for comment.
No material event notices about financial problems or the school closing were posted on the Municipal Securities Rulemaking Board's EMMA filing system.
The college received a clean audit opinion in 2014. It listed operating revenues of $34.85 million and expenses at $35.44 million. In addition, tuition and fees were listed at $22.99 million but scholarship aid was $12.83 million.
The bonds have traded infrequently. On Wednesday, a customer bought $135,000 in bonds maturing in 2018 for 94 cents on the dollar to yield 6.24%.
A $25,000 block scheduled to mature in September was sold by a customer at 98 cents on the dollar to yield 7.45%. Before that the last trade in the same security was in 2006 at 98 cents on the dollar to yield 4.3%.
In a release posted on Sweet Briar's website, board chairman Paul G. Rice said that the college closely examined its financial situation, weighing it against obligations to current and prospective students, parents, faculty and staff, alumnae, donors, and friends.
"We voted to act now to cease academic operations responsibly, allowing us to place students at other academic institutions, to assist faculty and staff with the transition, and to conduct a more orderly winding down of academic operations," said Rice.
No specifics about the situation were mentioned in the release other than that the college began a strategic planning initiative in March 2014 to examine how to attract more students and solicit additional fundraising.
"Unfortunately, the planning initiative did not yield any viable paths forward because of financial constraints," the release said.
President James F. Jones Jr. said that officials tried to find a solution to the challenges that Sweet Briar faced.
"This work led us to the unfortunate conclusion that there are two key realities that we could not change: the declining number of students choosing to attend small, rural, private liberal arts colleges and even fewer young women willing to consider a single-sex education, and the increase in the tuition discount rate that we have to extend to enroll each new class is financially unsustainable," Jones said.
Standard & Poor's said it will resolve the CreditWatch status of the college's bonds once more details are obtained about the plan to wind down operations.
"We would lower the rating if college's actions result in an acceleration of all debt outstanding and the college is not able to demonstrate that it can liquidate its endowment in a timely manner," S&P said.
