AMHERST, Mass.—Amherst College today (Thursday, August 4, 2011) successfully remarketed $41.3 million in tax-exempt securities at a 0.2 percent rate for a 45 day period, a level Amherst officials say they are pleased with because it reflects the college’s strong financial position and substantial resources.
“This remarketing is part of an overall plan to take advantage of favorable longer term interest rates,” said Peter J. Shea, Treasurer at Amherst College. “At the conclusion of this 45-day remarketing in mid-September, we plan to remarket the bonds again, this time for a longer period, possibly three to five years. We have every reason to believe that reissue will be as successful. We remain one of the few institutions nationally that carry Moody’s highest Aaa rating, and our endowment has recovered substantially since the 2008 market reduction.”
Earlier this week, citing concerns about the college’s cash levels, Moody’s Investors Service issued a report in which it placed Amherst College on credit watch for possible downgrade. But Shea and Jide Zeitlin, Chairman of the Board of Trustees, expressed confidence in the college’s financial strength and its ability to comfortably meet future financial obligations.
“In the current environment we recognize that an agency might choose to adjust its standards across all institutions,” Zeitlin said. “We are comfortable that between current cash, available lines and other liquid assets, we have ample resources to cover any market requirements.”
In addition to Thursday’s securities remarketing, in January the college will be remarketing an additional $50.5 million of outstanding bonds, and the college will continue its discussions with Moody’s regarding how best to measure its available liquidity to support its outstanding debt.
The Moody’s report states that successful bond issuances are one factor that will positively influence future assessments of the college’s rating, along with improved liquidity and a material reduction in demand debt given already narrow liquidity.
The Moody’s report also articulates the following Amherst College “strengths,” which continue to make it deserving of its highest Aaa debt rating:
“Prestigious undergraduate liberal arts college with superior student demand profile that is expected to remain strong, reflected by record applications levels for the fall 2011 class.
“Strong financial management that has translated into consistently superior operating performance, with operating margins averaging a strong 23.2% for the three years as calculated by Moody's and an exceptional 38.1% operating cash flow margin in FY 2010 (ended June 30) that produced 8.5 times average debt service coverage of a debt structure with significant deferred and bullet principal maturities.
“Demonstrated ability to grow endowment and successfully manage a sizeable capital campaign. The College is on target to exceed the current $425 million comprehensive campaign target announced publicly in October 2008 and expected to end in fall 2013.”
“Amherst’s investment decisions over the past two years and our current financial profile express our confidence in the investment opportunities that we are seeing and thus a desire to be more fully invested,” Zeitlin said. “We have been looking to optimize the risk adjusted returns on our financial assets, and believe there is an attractive opportunity long-term opportunity set as the world climbs out of the lows of early 2009.”