A recent story crossing the Bitvore platform reminds us that many of the nation’s smaller universities face enrollment and cost pressures that could impact bondholders. The Portsmouth Daily Times reported that Shawnee State University – in Portsmouth, Ohio – is facing a $2.5 million budget shortfall. The university’s president attributed the budget gap to declining enrollment and cuts in state funding.
Established in 1986, Shawnee State (SSU) has not had time to build up a large endowment. According to its most recent audited financials, unrestricted net assets fell from $18.4 million in 2011 to $17.7 million in 2012 and $16.7 million in 2013. This year’s budget shortfall will result in a further reduction in net assets.
Meanwhile, SSU’s long term debt was $18.9 million in 2013. Most of the debt consists of “General Receipt Bonds” issued in 2007. These obligations are not guaranteed by the State of Ohio, so bondholders cannot expect a taxpayer rescue. On the other hand, the bonds were insured by MBIA. They carried MBIA’s AAA/Aaa rating at the time of issue, but now have lower ratings in light of bond insurer downgrades during the financial crisis. That said, MBIA’s National Public Finance Guarantee unit has substantial reserves and a diversified portfolio of insured obligations. It should thus provide a measure of security not available to holders of uninsured university bonds.
According to Bloomberg: “Harvard Business School professor Clayton Christensen has predicted that as many as half of the more than 4,000 universities and colleges in the U.S. may fail in the next 15 years.” This higher education shakeout is occurring in communities around the country, and is reported first by college newspapers and other local media outlets. Bitvore searches this local content, maps relevant stories to Obligors and thereby allows you to monitor news impacting your portfolio in real time. Rather than wait for rating agencies or national financial media to pick up these stories, get ahead of the pack with an account on Bitvore.