University in Kentucky breaches covenant, hires consultant

Fitch Ratings

Kentucky-based Campbellsville University breached its debt service covenants and hired a financial consultant to advise it. 

Bond trustee Argent Institutional Trust posted to the Municipal Securities Rulemaking Board's EMMA website last week it had "received notice from the university that it has hired Sarah Loghin of Forvis Mazars, as a consultant … to make recommendations with respect to the tuition, fees and charges and its methods of operation and other factors affecting its financial condition in order to increase its debt service coverage ratio …  to a level required by the loan agreement."

In a note to an unaudited financial statement posted to EMMA in December, the private Christian school said its debt service reserve coverage ratio was below its covenanted 1.25 times level. The university had $37.9 million of outstanding bond debt as of June 30, 2025, the statement said, net of unamortized discount and issuance costs. 

The university issued industrial building revenue bonds using the city of Campbellsville as conduit in 2013, 2014, and 2017, according to EMMA. None of the deals were rated.

"The university shares many of the characteristics of schools that are struggling in the higher education sector," said Lisa Washburn, managing director with Municipal Market Analytics.  "It's a tuition-dependent, religiously-affiliated, relatively small, rural university. Like other higher education institutions facing financial challenges, enrollment has been on the decline with full-time undergraduate headcount down by almost 20% and overall enrollment down about 25% since 2021."

MMA's Default Trends reported the covenant breach Wednesday. 

"Notably, graduate enrollment took a steep dive of almost 35% in the past year," Washburn said. "The result was that net tuition dropped 25% while expenses fell only 6%, leading to an operating deficit and covenant miss."

Total enrollment was 8,755 in 2025, down from more than 13,000 in 2023, according to a disclosure about operations posted in December.

The school owes $2.37 million in debt service this fiscal year and $2.46 million of it in the next fiscal year. 

The school didn't respond immediately to a request for a comment.

In 2025 the higher education sector was tied with four other sectors for 5th for the most bond defaults, among 32 sectors, according to Default Trends. 

Both Moody's Ratings and Fitch Ratings have negative outlooks on the nonprofit higher education sector in 2026. 

"Stronger headwinds, including shifting federal policy priorities, are likely to contribute to strained revenue growth prospects in 2026," said Emily Wadhwani, senior director of Fitch Ratings. "A vulnerable international student pipeline, a shrinking domestic student base and rising scrutiny on the value proposition of a higher education degree are likely to erode any meaningful student fee revenue growth prospects in the coming year." 

Wadhwani also cited rising uncertainty about federal and state support and continued expense escalation. 

Moody's cited similar concerns to Fitch when it released its negative sector outlook in November. 

The Trump administration has launched civil rights investigations into schools' diversity policies. 

Declines in international enrollment spurred by the federal government's anti-immigration policies have been particularly painful, said Moody's Analyst Patrick Ronk, as international students typically bring high net tuition revenue.