Benedict’s credit rating spirals downward

Moody’s issues two downgrades in nine days, puts college on ‘watch list’

Benedict College’s creditworthiness was downgraded twice during July by Moody’s Investors Services.

The firm, which evaluates for investors the risk of debt issued by governments, institutions and businesses, cited the college’s recent decision to borrow money to make its July 30 payroll as a factor.

The lower credit ratings make it more expensive for Benedict to borrow in the future, said state Comptroller General Richard Eckstrom.

“There’s a market for risky debt, but they’ll pay a lot more for it,” the comptroller and former state treasurer said.

That could be important as Benedict, which has been a mainstay of African-American education in South Carolina for a century and a half, looks to refinance $32 million in bank loans, including an almost $11 million loan to build a football stadium.

Benedict is the only South Carolina college on Moody’s “watch list,” which is for schools experiencing financial instability.

Since late June, there have been three opinions issued on Benedict’s creditworthiness:

• June 28, Standard & Poor’s, another ratings agency, did not lower its rating of Benedict’s debt, instead reaffirming its non-investment-grade rating, or “junk bonds” in the slang of Wall Street.

• July 18, Moody’s downgraded Benedict “based on continued declines in enrollment since 2002, two fiscal years of deficit operating margins, thin unrestricted cash, and recently increased borrowing without any offsetting financial resource growth.”

• Nine days later, on July 27, Moody’s lowered Benedict’s credit rating again, skipping a rating to place Benedict’s debt four notches below investment grade. Moody’s said Benedict borrowed on a line of credit from a bank to meet its $700,000 biweekly payroll due July 31.

“We remain concerned about the current liquidity levels as well as potential for renewed liquidity pressures should enrollment not materialize as planned or should banks and other creditors fail to continue extending credit to the college,” Moody’s said.

Benedict spokeswoman Kymm Hunter declined Thursday to answer questions about the Moody’s report.

Moody’s said Benedict is predicting fall enrollment will be 2,541, roughly the same as last year. That’s good news for the college.

However, the ratings agency warned that Benedict, “despite declining financial resources,” has continued to increase its debt. According to its audited financial statements for the year that ended June 30, 2005, the college had $101.2 million in total debt and liabilities. Moody’s said in its July 18 report that Benedict added $5 million more in debt since.

In addition, Benedict has seen its revenues shrink in recent years, according to the college’s financial reports to the government:

• Private giving dropped 59 percent between 2001 and 2005.

• Profits from its auxiliary enterprises — food service, dormitories and vending — dwindled from $6.1 million in 2003 to $846,951 in 2005.

• Between 2000 and 2005, Benedict’s tuition discounts doubled to $4.3 million, which helped students but hurt the college’s balance sheet.

Benedict’s cash-flow shortage has been made worse by its reliance upon borrowing from banks, Moody’s said.

Standard & Poor’s said Benedict plans to refinance about $32 million in bank loans, including $10.7 million with Carolina First Bank and $14.5 million with Merrill Lynch, within the next year.

Some trustees continue to call for a special board meeting to review the college’s financial woes.

Columbia attorney Stephen Morrison, who is a Benedict trustee, said he would support five other trustees who have told The State they want a special board meeting.

“I would support that, and I think Dr. Swinton would support that,” Morrison said. David Swinton is Benedict’s president.

Morrison, who has been a lead attorney on a lawsuit by poor South Carolina school districts to win more resources from the General Assembly, said Benedict remains an important source of higher education for South Carolina’s underserved poor people.

“Benedict is serving a population that is not adequately prepared by the state of South Carolina for college-level work,” Morrison said. “Benedict is working very hard to provide them with an opportunity.”