S&P lowers Univ. of Hartford’s bond rating amid financial challenges
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The University of Hartford campus
The University of Hartford has suffered another hit in a string of financial setbacks, as S&P Global Ratings downgraded its long-term rating on $154.5 million in debt owed by the institution.
In a decision issued June 9, S&P lowered UHart’s bond rating, from BBB- to BB+, and forecasted a negative outlook. That takes these bonds from “investment grade” to “speculative grade,” according to S&P’s ranking system.
Last year, the 66-year-old university’s operating deficit shot up to $17.1 million, and it discovered it breached a debt service coverage ratio on a $132 million bond issued in 2019.
S&P downgraded the rating for the balance owed on that bond, as well as the balance of a $25.5 million bond issued in 2022.
The proceeds of those bonds were used to refinance debt and for campus improvements, including construction of a new engineering and health sciences building and upgrades to student housing, among other projects.
In a statement released Tuesday, UHart expressed disappointment with S&P’s decision, noting it has already undertaken accounting reforms and is seeing results from improvements to educational offerings and student experience.
“The university is a secure enterprise with great momentum and the essential pieces are in place to continue its success,” reads a portion of the UHart statement.
S&P Global Ratings credit analyst Jessica Goldman said, “The lower rating and negative outlook reflect our view of widening operating deficits, weakening liquidity position, and recent enrollment and demand pressure.”
The rating could drop further if: enrollment and demand at the university declines; deficits persist; or the university’s available resources weaken more than expected, according to S&P.
The ratings agency also noted it could revise UHart's bond outlook to stable if enrollment steadies and the university is successful narrowing and maintaining or growing "available resource levels."
UHart contends recent improvements to its offerings, campus and financial practices have set it on a solid course.
“The university has a positive trajectory in many areas this year, including increased enrollment, and provided specific action steps to address concerns,” the school said.
UHart noted its “strong” endowment and its funding of a service reserve fund required under its bond agreements.
“We will continue to manage our financial position and operations closely; we are committed to making significant progress in areas of concern, and we are confident in our ability to increase our future rating,” UHart said.
Improvements, challenges
Signs of financial trouble cropped up last year as the university discovered and reported accounting errors in financial statements related to its budget report and documents affiliated with a $132 million bond accessed through the Connecticut Health and Educational Facilities Authority in 2019.
Once those accounting errors were corrected, the university fell out of compliance with its required debt service coverage ratio – which is an important indicator of ability to repay debt.
The university has been able to absorb deficits and remain current on its bond payments. UHart staff previously noted an ample endowment and untapped line of credit as signs of the institution’s resilience.
After breaching its debt service coverage ratio, UHart hired financial advisor Longhouse Capital Advisors. In a report released this spring, Longhouse outlined steps to put the university back into compliance with bond obligations.
The report noted an effort by the school to free up $11 million through budget cuts and other means. That package would mostly consist of what Longhouse termed “expense right-sizing.”
Strategies under consideration included increasing student-to-faculty ratios, cutting employee benefits and salaries, rebidding contracts, among others.
Longhouse’s report anticipated annual 3% tuition hikes and increasing enrollment over a three-year period. UHart was also to consider selling property not contiguous with its 350-acre campus in West Hartford, Hartford and Bloomfield.
UHart has hired a seasoned chief financial officer, Jamie Skowyra, who had previously served in the same role at Nichols College in Massachusetts.
UHart said its enrollment metrics are improving coming out of a pandemic-fueled dip. It stressed the pandemic, inflation and rising competition have been impacting the broader higher education sector.
The university also detailed a string of improvement efforts in the past five years, including the addition of 16 new academic programs, a new 60,000-square-foot building for engineering and health studies, added student support services and $20 million in student housing upgrades.
The university also said it raised $75 million through partnerships in the same timeframe.
In a bond update presentation dated this May, UHart noted ongoing improvement efforts and acknowledged lingering challenges. That report projects a $12.4 million deficit at the close of fiscal 2023.
UHart is in the middle of several leadership changes. President Gregory Woodward announced he will step down from his role on June 30. He will be replaced on an interim basis by Barney School of Business Dean Stephen Mulready.
Stanley Black & Decker CEO and President Donald Allan Jr. recently took over as the school’s board chair, replacing David Gordon.
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