Hampshire College to close after failing to refinance bonds

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Massachusetts-based Hampshire College is closing its doors in December amid financial strains led by an inability to make a looming payment on $21 million of bonds.

The private liberal arts college announced the closure Tuesday. The move comes after the last three audits warned of doubts about the college's ability to continue as a going concern unless it was able to secure financing for bonds issued in 2012 and 2016, or win additional bond holder forbearance. The college, in its closure notice, said it tried and failed multiple times to refinance its debt, which has a mandatory tender in September.

"The financial pressures on the college's operations have become increasingly complex, compounded by shifting external factors," the board of trustees and college president Jennifer Chrisler said in a statement. "We worked aggressively to increase enrollment, refinance existing debt, and realize new revenue via the sale of a portion of our land," they said. "We are faced with the clear, heartbreaking reality that progress on each of these three key factors has fallen far short of what we had hoped."

In March, the New England Commission of Higher Education warned that Hampshire was in danger of being placed on probation or having its accreditation withdrawn based on its financial situation. In addition to being unable to refinance the debt, the college failed to monetize some of its land through a development, the commission noted.

The college has about $25 million of short-term debt, including the bonds and a $4.5 million note from a charitable organization, according to the 2025 audit. After missing bond covenants in 2024 and 2025 on both sets of bonds, the 2012 bondholders agreed to extend the refinancing date to September 2026, in exchange for a mortgage on certain properties, the audit said. The college does not have the assets to pay off the bonds.

The 2016 bonds were not subject to a put option but the 2025 covenant miss could trigger events of default, the audit said.

"The degree of short-term debt tied to our land assets means that even a favorable sale would not change our long-term financial trajectory given current enrollment," the college said in its closure statement.  

The 2016 bonds total $15 million with a 2.8% interest rate, according to the MSRB's Electronic Municipal Market Access website. It's unclear whether the bonds, which were issued as a 15c2-12-exempt limited offering, are publicly or privately held. The 2012 financing totals $8.9 million with a 4.4% interest rate. Those bonds are not listed on EMMA.

Municipal bondholders have long been aware of financial strains across the higher-education sector, especially among small, private colleges located in the East or Midwest, and many have become more selective about which bonds they purchase.

"It's always a very, very sad moment when you see a school close," said James Iselin, head of municipal fixed-income at Neuberger Berman. "This is a macrotrend we've been talking about for awhile, in which there are demographic trends that are headwinds," Iselin said, citing shrinking enrollment, increased competition and fewer international students. "We don't avoid the higher education space but [we] focus on the highly competitive schools where the demand profile is unbelievably high, where they have selectivity in their admissions process, not a lot of tuition discounting and [strong] balance sheets."

Hampshire's closure is the "tip of the higher ed iceberg," said Andrew Clinton, CEO of Clinton Investment Management, in an email. The firm is "underweight higher education at this time as the yield often does not compensate investors for the risks. Rather, Clinton invests opportunistically in issuers that confidently can sustain their debt levels."

Recovery rates for bondholders of colleges is typically less than 100%, Clinton said. Bondholders rely on the sale of the school's assets, but often a closure means a liquidation in which the sale price is less than the appraised value, he said.