The University’s debt increased by $100 million in the last year, more than twice the average annual increase in debt over the last decade.
The debt now stands at $1.1 billion, more than double the $533 million it was 11 years ago, but steady with the levels reported in April.
The jump is hardly the highest in recent history. In 2009, GW added a significant $200 million to its debt load after the school issued and sold bonds to ensure access to cash in the troubled economy, administrators said then. In the last 11 years, the University has added about $51.5 million to its debt annually on average.
Despite the University’s large amount of debt, Moody’s Investors Service, a leading financial rating agency, says GW is in a healthy financial position. Moody’s gave the University an A1 rating – its fifth highest rating out of 10 possible “investment grades” – in a report this summer, concluding that GW’s financial outlook is stable.
“The stable outlook reflects expectations of [the University’s] continued strong student market position, substantial financial resource base and limited plans for additional debt,” according to the report.
The debt last increased in March when the University borrowed $100 million to increase cash-on-hand, part of Executive Vice President and Treasurer Lou Katz’s approach to borrow when opportunities arise instead of when projects begin.
“Never ever borrow money when you need it,” Katz said.
The report cited many of the same strengths it has in the past, including the University’s balance of expendable resources to its debt, philanthropic efforts and increasing admissions selectivity, which leads to a steady revenue stream from tuition.
The University took out a $50 million loan in September 2010, a sign of continued growth despite nationwide economic hardship, Moody’s noted.
The University also refinanced $50 million in debt at a lower interest rate last month, a move that Katz said will save $750,000 in interest payments.
Since the refinancing, the University has maintained a stable financial state, according to an August report by financial rating agency Moody’s Investor Service.
“During the recession, the University increased investments in programs, faculty and financial aid while many peers were focused on cost reduction or containment,” according to the August report.
Several areas may threaten the University’s financial stability, according to the Moody’s report.
It newly cited “weakened operating performance” and thin cash flow compared to peer institutions in the 2010 fiscal year.
The University’s policy of fixed tuition limits its flexibility to increase revenue through student fees, the report warned.
“We’re not looking necessarily to reduce the amount of debt,” Katz said, adding that he was satisfied with the University’s balance of assets to debt.
Because the University is approaching the maximum number of students allowed to live and study on the Foggy Bottom and Mount Vernon campuses, tuition revenue may not increase dramatically unless the University decides to raise tuition costs. GW could also sidestep the enrollment cap by moving a significant number of students or increasing enrollment at the Virginia Science and Technology Campus or elsewhere.
Boston University had $1.1 billion in rated debt as of August 2011, with an A2 rating from Moody’s. New York University’s rated debt as of July 2010 came in at $1.9 billion with a high AA3 rating from Moody’s, a representative from the company said.
The University’s debt remained steady despite large construction projects on campus because the University self-amortizes, Katz said. The process entails depreciating assets and using the free cash on projects instead of paying down the debt, he explained.
