Debt service pressure a factor in closing of Southern Vermont College

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A heavy debt burden driven largely by a decade-old bond issuance led to the announcement that Southern Vermont College will close after the spring semester.

David Evans, president of the private, nonprofit liberal arts school, announced Monday that it will shut down during the summer, citing fiscal pressures and declining enrollment. The decision follows the New England Commission of Higher Education informing SVC on March 2 that it was withdrawing the Bennington-based school’s accreditation effective Aug. 31 due to a lack of institutional resources.

“This is not an outcome anyone desired or sought,” Evans wrote in a March 4 memo. “But given our specific financial challenges and lack of resources, regional demographics, the enrollment challenges facing small private colleges throughout the country and increased scrutiny from our accreditor, it is the most responsible path.”

Another small school in Vermont, Green Mountain College in Poultney, announced in late January that it will shut down at the end of the spring semester.

Evans cited debt service pressures from an $8.5 million revenue bond transaction issued in 2012 through the Vermont Economic Development Authority for a new dorm as a big factor in SVC’s financial challenges. The bonds, which have a 2031 final maturity date, are secured largely by real estate assets, tuition revenue, an insurance policy on the life of the college’s president and a $2 million escrow account maintained by an unrelated third party, according to a 2016 independent auditor’s report. None of the Wall Street ratings agencies rated the transaction or rate the school.

Merchants Bank was bondholder on the deal, which requires monthly payments of $49,538 including interest at 3.3929% through April 2021. Merchants was acquired by Community Bank in 2017. Community Bank and the VEDA did not immediately respond for comment on how SVC’s closing will impact the outstanding bonds.

SVC enrolls around 330 undergraduate students, down from around 500 during its peak. The school is exploring multiple transfer options with Massachusetts College of Liberal Arts and Sciences, Norwich University and Castleton University listed as possible options for students that would fit well with SVC's curriculum. A teach-out agreement has already been established with MCLA “that provides clear pathways and financial equity for most SVC programs,” according to Evans’ letter.

The closings continue a pattern of small Northeast private colleges struggling to stay open. Newbury College in Brookline, Massachusetts, will also close after the academic year, and Hampshire College in Amherst, Massachusetts, is not accepting a full freshman class for this fall while it seeks a strategic partner. Mounting debt obligations have also forced the College of New Rochelle in New York's Westchester County onto the brink of closing this year.

“It is classic supply and demand with too many private higher education institutions for a shrinking number of students in the Northeast region,” said Lisa Washburn, managing director at Municipal Market Analytics. “I expect that higher priced alternatives that do not have a strong market position will likely continue to face pressure and that we will see more college closings and/or mergers in the coming years.”

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Higher education bonds Vermont Economic Development Authority Vermont