Swarthmore College is expected to tap the $4 trillion municipal bond market for more than $125 million of debt, hoping to lure buyers with its top-tier credit rating.
(Bloomberg) — Swarthmore College is expected to tap the $4 trillion municipal bond market for more than $125 million of debt, hoping to lure buyers with its top-tier credit rating.
The Swarthmore Borough Authority will issue tax-exempt bonds in a competitive auction Thursday. The proceeds will fund capital projects on the Pennsylvania campus and will be used to refinance outstanding debt, according to preliminary bond documents. Improvements include the renovation of Martin Hall, an academic building that houses the school’s computer science and media studies departments.
Both Moody’s Investors Service and S&P Global Ratings granted Swarthmore their highest rating of AAA, a rare distinction among colleges. S&P currently designates 29 of about 450 colleges and universities as AAA, the company said. Other educational institutions that boast the rating include the nation’s wealthiest schools like Harvard University, Yale University and the University of Texas.
“We assessed Swarthmore’s enterprise risk profile as extremely strong, characterized by a history of solid demand including very solid selectivity, matriculation and retention rates, and student quality,” S&P Global Ratings credit analyst Phillip Pena wrote in a report.
Swarthmore bucks a broader trend in higher education in which some small-private schools have struggled to retain students amid cheaper public alternatives. Private schools that have strong endowments and prestigious reputations, like Swarthmore, are more insulated from the pressures.
Read More: Colleges Dangle Tuition Deals to Head Off Harsh Economic Reality
“The sector has really turned into the haves and have nots,” said Dora Lee, director of research at Belle Haven Investments. “The pressure in the higher education sector have really hit institutions that have weak enrollment and small endowments hard. But institutions that have that endowment cushion — and have distinguished themselves academically — have had significantly less challenges.”
S&P has a stable outlook on the credit indicating the rating is unlikely to change in the near term. That reflects the company’s expectation that “Swarthmore will maintain steady enrollment and its excellent demand characteristics,” analysts wrote in the report.
Its $2.7 billion endowment and ultra-selective application process set it apart. Last fall, the school accepted roughly 1,000 of its 14,707 applicants — amounting to a roughly 7% acceptance rate.
Representatives for Swarthmore referred questions about the deal to Linda Fan, a partner at the Yuba Group, which serves as the financial advisor on the transaction. Fan said she anticipates that the bonds will price well.
The total cost to attend Swarthmore during the 2022-2023 academic year amounted to $77,354 including tuition, fees, housing and food expenses. That is about 14% increase in the last five years, according to bond documents. Peer institutions such as Yale and Columbia University — who also received AAA ratings from S&P — charged more than $80,000 last year.
Moody’s credit analysts pointed to the school’s “exceptional wealth” relative to its operating expenses, in a June report evaluating the credit.
“The college competes with other highly selective and well-endowed institutions, driving the need for capital investment and a premier student experience,” Moody’s analysts wrote.
And though inflation and interest rates remain high “projects need to get done,” Susan Shaffer, vice president at Moody’s said.
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.