The Sage Colleges’ credit rating has dropped to the lowest among private institutions in the nation, according to a leading rating agency.
Moody’s Investors Service provides credit ratings, research, tools and analysis to approximately 500 public and private higher education institutions. In March, Moody’s downgraded The Sage Colleges from a B3 to Caa1. Student enrollment continued to decline at the college, made up of two campuses in Albany and Troy, and the school extended credit lines to cover operational costs over the last two years.
Moody’s assistant vice president Pranav Sharma:
“Most of the revenue for [the] college comes from student enrollment and this was the second year in a row where the college had enrollment decline of 7 percent or higher, and if they are not able to adjust their expenses it will result in decline in operating income and cash flows,” says Sharma.
Sage has also has turnover in several leadership positions including president, CFO and the head of enrollment. Dr. Christopher Ames was inaugurated as president in October and believes the college is heading in the right direction.
“I think we had not kept up as effectively with new methods of recruiting students and we have made dramatic changes there this year, and we are seeing that in practically double the number of applications and a very large increase in deposits for fall. We have 515 deposits today as opposed to 266 at the same day last year,” says Ames.
Moody’s says only two other institutions have ever received a rating as low: Dowling College in Long Island and Birmingham Southern in Alabama. Dowling, which received the rating of Caa1 in 2012, has since entered forbearance, lost accreditation and closed. Birmingham Southern, which was downgraded to Caa1 in 2011, has since begun a slow recovery and as of June 2017 has been upgraded to B3.
Sharma says the high concentration of colleges and universities in the Capital Region is a challenge for Sage.
“Then you have SUNY, which is a low price competitor with a significant economy of scale. So that is not the competition you want to have,” says Sharma.
Roughly 90 percent of Sage’s incoming freshmen are New York state residents. The report highlights the Excelsior Scholarship, which makes SUNY tuition free to some New York families and has been criticized by many private schools. However, Dr. Ames says he is not worried. He says private institutions have always had to compete with cheaper state schools, and have unique offerings.
“The Excelsior has been like 18 months of advertising for the SUNY system, and that is a little difficult for those of us who are in the privates and I wouldn’t say that it will have no effect if will have some. We do stress to our applicants that the aid we provide, though it requires full-time attendance and maintaining a good GPA, does not have restrictions on where you work and live after you graduate,” says Ames.
Moody’s reports next to enrollment declines, the college’s liquidity is another challenge that needs to be addressed. Again, Sharma:
“Sage has a very low liquidity for a while, and it is very heavily reliant on an external line of credit to fund its operations and for the working capital needs,” says Sharma.
In 2017, Sage had an operating deficit of more than 10 percent, and the college’s operating cash flow did not cover debt service. Therefore the college increased its annual line of credit from $7 million to $8.5 million. Dr. Ames says extending the line of credit is not an option for this year.
“A reaction to the budgetary problems last year, but we’ve addressed that. The dual focus that we have had this year has been reducing expenses and increasing enrollment and we have made great progress on both of those,” says Ames.
Sharma says there are many variables to consider and it too soon to tell if the school’s recruitment strategy will result in stabilization.
