Amherst College Debt Cut by S&P as Top-Rated Schools Dwindle

Amherst College, one of the wealthiest U.S. liberal-arts institutions, lost its top credit rating because of an increase in debt relative to revenue, Standard & Poor’s said yesterday in a report.

The school in western Massachusetts was cut one step to AA+ from AAA as it prepares to borrow $100 million for capital projects delayed after the global financial credit crisis in 2008, bringing its debt load to $412 million, S&P said. Williams College, another elite private school located farther west, on the border with New York, was downgraded by S&P in July because of diminished financial resources.

Amherst has been seeking to recover from the crash, when it suffered deep investment losses and was left short of cash because of its holdings of hard-to-sell assets such as private equity funds. Harvard University and at least 14 other elite universities sold taxable bonds after the crisis to have sufficient cash on hand. Amherst borrowed $100 million in 2009.

The college, which counts Nobel Prize-winning economist Joseph Stiglitz as an alumnus, is restarting stalled projects, including a $244 million science center, S&P said. It’s preparing to sell an additional $100 million of taxable bonds, significantly increasing its debt burden, which consumes 11.9 percent of its operating expenses, the New York-based rating company said.

Falling Grades

The school will sell the taxable bonds in the next few weeks, Shannon Gurek, the acting treasurer, said in an e-mail. Amherst is seeking a permanent replacement for Peter Shea, the treasurer of 25 years who left this year, S&P said.

S&P gives AAA ratings to 16 universities, including Harvard in Cambridge, Massachusetts. Since the credit crisis it has also cut the top rating of Dartmouth College in Hanover, New Hampshire, Rockefeller University in New York and the California Institute of Technology in Pasadena, Nick Waugh, an S&P analyst in Boston, said in a telephone interview.

Amherst, which this year charged $55,510 for tuition, room and board, had a $1.6 billion endowment as of June 30, 2011, the 42nd largest among institutes of higher education in North America, according to a report from the National Association of College and University Business Officers. The endowment earned about 1 percent on its investments in this most recent fiscal year ending June 30, S&P said.

While Amherst has an “impressive demand profile, good matriculation rate, and excellent student quality,” it is highly dependent on operating subsidies from its endowment, which has a “low level of liquidity,” S&P said.

The college, which was started in 1821 and has more than 1,700 students, is about 90 miles (145 kilometers) west of Boston in Amherst, which is also home to Hampshire College and the main campus of the University of Massachusetts. It has exceeded fundraising goals, raising $446 million in the past four years, S&P said.

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