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Nursing Home Staffing Mandates to Further Strain Troubled Sector
By Lauren Coleman-Lochner
September 8, 2023 at 11:37 AM EDT
A proposed federal rule that would establish staffing requirements at nursing homes across the US could push the already-troubled sector further into distress, even as the pandemic highlighted their failings.
The Centers for Medicare & Medicaid Services said that “chronic under-staffing remains a concern,” in a Sept. 1 statement outlining the proposed rule, which includes requiring a registered nurse onsite 24 hours a day, seven days a week. About 75% of US facilities would need to make adjustments under the new rule, CMS said. Nursing homes could receive a hardship extension “in limited circumstances.”
Labor shortages and their associated costs still plague nursing homes, which in some cases have eliminated beds because of an absence of caretakers. That’s also created a problem for hospitals, which rely on the homes to take patients who need rehabilitation services when they’re ready for discharge.
“I 100% agree that there should be adequate staffing at nursing homes,” but “this is an added cost on an already-strained sector,” said Lisa Washburn, managing director at Municipal Market Analytics. CMS estimates that the costs over 10 years to meet the mandates will be $40.6 billion.
Four nursing homes that have borrowed in the municipal market have had payment defaults this year, according to data compiled by Bloomberg Intelligence. For the entire senior-living sector, which includes developments that offer a range of care, from independent living to 24-hour care, the number is 26, most of them payment, not technical defaults.
The sector along with hospitals is also the worst-performing category in the high-yield municipal bond market, with a return of -0.5% this year, according to data compiled by Bloomberg.
“We’re seeing an uptick in bankruptcies and defaults,” said Washburn.
More Closures Ahead
The American Health Care Association has tallied 579 nursing home closures since 2020. Some struggling homes that are still operating were “propped up” by federal pandemic relief funds that have run out, Washburn said. There is “no shortage of new ones that are making their way into trouble,” she said.
The proposed rule will “likely force more closures given the low reimbursement rates that have failed to keep up with rising labor costs,” said Dora Lee, director of research at Belle Haven Investments, which invests in the sector. “Never mind whether operators can afford the increased costs, they are already having a difficult time finding qualified people.”
In Wisconsin, the home state of Larry Lester, a principal in the senior-living consulting practice at Wipfli LLP, thousands of beds were lost in the past decade, he said.
“We’re downsizing at a time when the baby boomers are just outside the window and are going to need services,” said Lester, whose firm forecasts the population of Americans over the age of 85 to double by 2035.
The large number of deaths at nursing homes early in the pandemic highlighted the need for better care and accountability. It prompted action from federal and state legislators, including a 2022 White House proposal for more staffing, enforcement and ownership disclosure in the sector, where about 70% of facilities are privately owned. A congressional report last year examined breakdowns in care at five for-profit chains.
National Consumer Voice for Quality Long-Term Care, a patient-advocacy group, called the proposed rule “dismal,” saying it falls far short of standards needed to ensure adequate care.
The rule, which CMS says would affect more than 1.2 million Americans at Medicare and Medicaid-certified long-term care facilities, now undergoes a 60-day comment period.
Industry groups, including the American Hospital Association, have already expressed their opposition. In a statement, the head of the American Health Care Association said the rule “requires nursing homes to hire tens of thousands of nurses that are simply not there.”
— With assistance by Eric Kazatsky and Karen Altamirano
Read original article:
https://www.bloomberg.com/news/articles/2023-09-08/nursing-home-staffing-mandates-to-further-strain-troubled-sector?srnd=undefined&sref=dlv6Ue8o
Facing Budget Shortfall, California Preps $2.6 Billion Bond Sale
Facing Budget Shortfall, California Preps $2.6 Billion Bond Sale
By Maxwell Adler
September 1, 2023 at 12:00 PM EDT
California is coming to market next week with its largest municipal-debt offering of the year, $2.6 billion of tax-exempt general obligation bonds that are expected to draw strong demand from investors during a period of lower-than-expected issuance.
The sale includes $1 billion of new debt to fund a variety of voter-approved capital projects including school construction, improvements to clean water access and high-speed rail. The Golden State will also sell $1.6 billion of refunding bonds to cut its borrowing costs, according to bond documents.
Retail investors will begin placing orders on Wednesday ahead of pricing Thursday. The bonds will be underwritten by Citigroup Inc. and RBC Capital Markets, and they are rated Aa2 by Moody’s Investors Service, AA- by S&P Global Ratings, and AA by Fitch Ratings.
“We expect investor demand to be strong for the deal,” said Dora Lee, director of research at Belle Haven Investments. “New issue supply has been so low that it’ll be a welcome drink of water for the parched investor community,”
The sale comes as a downturn in California’s historically cyclical economy is once again casting a shadow over its most recent budgetary outlook.
After experiencing combined budget surpluses of well over $100 billion during the past two fiscal years, Governor Gavin Newsom signed a budget in June that closed a nearly $32 billion shortfall. The sudden u-turn from surplus to deficit epitomizes the state’s volatile tax-revenue structure, which depends largely on personal income taxes from the highest earning Californians. Nearly half of California’s income tax collections come from residents in the top tax bracket.
Tax Deadline
The state’s outlook is further complicated by a six-month extension on its income tax filing deadline that was granted to those who were affected by severe winter storms this year. A complete accounting of California’s revenue collections will not likely be available until October due to the delays.
However, the state’s Budgetary Stabilization Fund gives it ample flexibility if collections fall short, S&P Global Analysts led by Oscar Padilla wrote in a rating report Aug. 24. California has a total of $37.8 billion in total budgetary reserves, according to bond documents.
“California’s has more than enough internal liquidity to manage the delay in those revenues given the state’s improved fiscal profile driven in part by greater fiscal and budgetary discipline. At this point, we don’t view the deficit as something problematic, ” said Ty Schoback, a senior municipal research analyst for Columbia Threadneedle Investments.
The slow down in issuance of state and local debt may bolster muni returns as investors react to the Federal Reserve’s signals that it will keep interest rates higher for longer to tame inflation. Long-term municipal bond issuance finished August at $236.8 billion, down 11.4% from the same period in 2022. The total number of deals sold is down 17.4% from 2022.
Price Cheaper
“It’s a great time to get into munis because you actually get paid for being in fixed income assets, which isn’t necessarily something we could have said a couple years ago,” said Jennifer Johnston, director of research for Franklin Templeton Fixed Income’s municipal-bond team.
Johnston said supply is expected to pick up after Labor Day.
Kyle Gerberding, Director of Trading at Asset Preservation Advisors, said he expects that the deal will have to price cheaper than where bonds have been trading in the secondary market.
“The benchmark 10-year California GO, with a 5% coupon, is currently changing hands in the secondary market close to flat to the AAA scale, or at a spread of 0-5bps. While it has traded as wide as roughly +20 to AAA MMD and as tight as 10bps through the scale (lower in yield than AAA benchmarks), we expect this deal, during the early September period, to see pricing closer to those wides, but should expect to see it tighten upon break,” said Gerberding.
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https://www.bloomberg.com/news/articles/2023-09-01/california-preps-2-6-billion-bond-sale-amid-budgetary-concerns?sref=dlv6Ue8o
Overlooked and Underappreciated – Taxable Municipal Bonds
Overlooked and Underappreciated – Taxable Municipal Bonds
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https://bluetoad.com/publication/?i=799641&article_id=4626500&view=articleBrowser
LA School System Kicks Off School Year With Municipal Bond Sale
LA School System Kicks Off School Year With Municipal Bond Sale
By Lauren Coleman-Lochner
August 14, 2023 at 1:45 PM EDT
The nation’s second-largest K-12 district is kicking off the new school year with a municipal bond offering while it contends with attacks from hackers, a dwindling student body and soaring labor costs.
The Los Angeles Unified School District, which begins the school year Monday, plans to borrow about $384 million to tackle cyberattacks, school safety and climate change, according to the bond offering prospectus. The series of bonds carries a sustainability label.
“The district is constantly facing a variety of persistent and evolving cybersecurity threats,” said the prospectus, which details previous incidents, including a ransomware attack last year that exposed some student data.
With more than 400,000 students, the Los Angeles school system trails only New York City in enrollment. The district sprawls over 710 square miles — or more than twice the land mass of New York City — encompassing most of the city and pieces of the rest of Los Angeles County.
More than $166 million, the biggest chunk of the bond proceeds, will go to cybersecurity, while $146 million will fund security, including video surveillance systems, at its more than 1,200 campuses, bond documents say.
“The reality is that many of our students encounter violence, unacceptable violence, at various levels on a near-constant basis,” superintendent Alberto Carvalho said in opening school-year remarks earlier this month, adding that gun violence is at “epic proportions.”
In 2021, the board of education for LAUSD approved a 35% cut in school police staff after activists pushed for redeployment of money for other services. This year to address safety issues, the district introduced a new school-safety program and an app to anonymously report incidents.
The latest bond offering follows one in November when LAUSD issued $500 million of general obligation debt. A bond due in 2047 from that series with a 5.25% coupon last traded at a yield of about 3.8% or roughly 15 basis points over the benchmark, data compiled by Bloomberg show.
The new series of bonds, which are backed by lease payments and rated A2 by Moody’s and A- by Fitch, is expected to be priced on Aug. 17. Some of the proceeds, approximately $81 million, will be used to purchase 180 electric buses and upgrade its bus yards for EV charging, according to the prospectus, while a small portion of the bond sale will go to improving student enrollment.
Like other major school districts, Los Angeles is grappling with an outflow of families who are moving to less expensive areas and a high portion of students living in poverty, according to Fitch Ratings director Divya Bali.
Bali said LAUSD has worked to stabilize enrollment, going door-to-door to reduce absenteeism and “reaching out to parents of newborns in maternity wards” with gifts of onesies to tell them about the state’s transitional kindergarten program that offers a second year of learning for children with birthdays in the latter part of the year.
The district, which is also having a difficult time retaining teachers, is also facing higher labor expenses, with growing pension and benefit costs. After a three-day strike by support staff in March, the district and teachers recently agreed to a new contract that includes a 21% wage increase through 2025.
The resolution of the teachers’ contract is a welcome development, said Dora Lee, director of research at Belle Haven Investments, which holds LAUSD debt. “Labor contracts have always been a major issue for the district, so the fact that they have an agreement in place through 2025 offers some near-term stability,” she said.
Even with higher labor costs, Los Angeles has “a strong track record of aligning revenues and expenses, and managing to their situation,” Bali said. “We expect that to continue to be the case going forward.”
— With Brad Skillman
Read original article:
https://www.bloomberg.com/news/articles/2023-08-14/la-school-system-lausd-taps-muni-bonds-to-protect-it-from-cyberattacks?sref=dlv6Ue8o
DC Transit System Sells Debt for Green Projects as Ridership Lags
DC Transit System Sells Debt for Green Projects as Ridership Lags
By Skylar Woodhouse
August 8, 2023 at 11:14 AM EDT
As the Washington DC region’s transit system struggles to regain ridership to pre-pandemic levels, its operator is tapping the municipal-bond market for the second time this year to finance sustainability projects.
The Washington Metropolitan Area Transit Authority is selling $798 million of debt on Tuesday to help fund its zero-emission bus transition plan. Transit agencies like WMATA are seeking other sources of revenue as farebox sales continue to lag due to a slow return to office for commuters who have grown accustomed to working from home.
WMATA is projecting a budget shortfall of $750 million in fiscal 2025, according to a June financial report. That gap is expected to grow through fiscal year 2035 even if ridership recovers. Weekday rail ridership has only reached about 50% of pre-Covid 19 levels.
The agency did not respond to a request for comment.
The deal comes as the $4 trillion municipal-bond market saw one of its worst weeks of performance in more than three months and outflows persist. Benchmark muni yields, which jumped up in the week ended Friday, have since stabilized and even inched down in early trading on Tuesday.
Dan Solender, head of municipals at Lord Abbett & Co., said now is a good time for transit deals. The supply of bonds has dwindled, so “if the deal is priced correctly there should be plenty of demand since they are strong credits in most cases,” he added.
Municipal-bond issuance for mass transportation totaled about $5.9 billion this year, down about 40% from the same period in 2022, according to Refinitiv data as of August 7.
Dora Lee, director of research at Belle Haven Investments, said investors have cash on hand so they will want to spend.
While S&P Global Ratings has a negative outlook on WMATA, the company grades the new series of bonds AA with a stable outlook. The debt is backed by dedicated capital funding revenues appropriated by DC, Maryland and Virginia, according to offering documents. Kroll Bond Rating Agency also has a AA rating on the series.
The bond sale, which is labeled as “Sustainability - Climate Transition,” is part of a broader effort by public transit agencies across the US trying to reduce their carbon footprint. Public transportation is viewed as an environmentally clean way to travel.
ESG investors say it’s important that green bond issuers authenticate how proceeds will be used for environmental or social purposes. WMATA hired BLX Group LLC, a municipal consulting group, for that purpose.
The agency will use money raised from the bond sale to create a 100% zero-emission bus fleet by 2024, deliver 10 megawatts of renewable energy to local communities and finance a plan to annually reduce the authority’s carbon dioxide emissions by 160,000 metric tons by 2025, bond documents show.
This year, the muni-bond market has seen a growing number of deals with ESG labels, which has drawn political criticism. Republican leaders have attacked ESG, saying the investment strategy is a way to move money for a liberal agenda.
“The green/sustainable labeling isn’t a negative on a deal, but at this time it does not give an issuer any material pricing advantage as opposed to not having the label. That could change in the future as demand for sustainable muni bonds grows and it is possible that could happen but not over the short term,” Solender said.
Read original article:
https://www.bloomberg.com/news/articles/2023-08-08/dc-s-metro-wmata-to-sell-debt-for-green-projects-as-ridership-lags?sref=dlv6Ue8o
Belle Haven Investments Earns 2023 Great Place To Work Certification
Belle Haven Investments Earns 2023 Great Place To Work Certification
RYE BROOK, N.Y., July 31, 2023 /PRNewswire/ -- Belle Haven Investments is proud to be Certified™ by Great Place To Work® for the second year in a row. The prestigious award is based entirely on what current employees say about their experience working at Belle Haven Investments. This year, 93% of employees said it's a great place To Work – 36 points higher than the average U.S. company.
Great Place To Work® is the global authority on workplace culture, employee experience, and the leadership behaviors proven to deliver market-leading revenue, employee retention and increased innovation.
"Great Place To Work Certification is a highly coveted achievement that requires consistent and intentional dedication to the overall employee experience," says Sarah Lewis-Kulin, the Vice President of Global Recognition at Great Place To Work. She emphasizes that Certification is the sole official recognition earned by the real-time feedback of employees regarding their company culture. "By successfully earning this recognition, it is evident that Belle Haven Investments stands out as one of the top companies to work for, providing a great workplace environment for its employees."
Matt Dalton, CEO & CIO, expressed his excitement emphasizing "We owe the Firm's continued success to our dedicated and awesome employees. We celebrate and thank them for all they do to earn this incredible recognition."
About Belle Haven Investments
Belle Haven Investments is an independent, employee-owned asset manager that focuses exclusively on fixed income. They prioritize service, reliability, and customization, nurturing long-term partnerships with their clients. Their core values - trust and communication - permeate both external client relationships and internal team dynamics. The autonomy given to employees fosters trust, driving them to deliver their best work daily. To learn more, visit: https://www.bellehaven.com/
About Great Place to Work Certification™
Great Place To Work® Certification™ is the most definitive "employer-of-choice" recognition that companies aspire to achieve. It is the only recognition based entirely on what employees report about their workplace experience – specifically, how consistently they experience a high-trust workplace. Great Place to Work Certification is recognized worldwide by employees and employers alike and is the global benchmark for identifying and recognizing outstanding employee experience. Every year, more than 10,000 companies across 60 countries apply to get Great Place To Work-Certified.
Read original article:
https://www.prnewswire.com/news-releases/belle-haven-investments-earns-2023-great-place-to-work-certification-301889586.html?tc=eml_cleartime
Swarthmore Leverages Its Rare AAA Rating to Borrow for Campus Renovations
By Jordan Fitzgerald
June 21, 2023 at 2:17 PM EDT
Swarthmore College is expected to tap the $4 trillion municipal bond market for more than $125 million of debt, hoping to lure buyers with its top-tier credit rating.
The Swarthmore Borough Authority will issue tax-exempt bonds in a competitive auction Thursday. The proceeds will fund capital projects on the Pennsylvania campus and will be used to refinance outstanding debt, according to preliminary bond documents. Improvements include the renovation of Martin Hall, an academic building that houses the school’s computer science and media studies departments.
Both Moody’s Investors Service and S&P Global Ratings granted Swarthmore their highest rating of AAA, a rare distinction among colleges. S&P currently designates 29 of about 450 colleges and universities as AAA, the company said. Other educational institutions that boast the rating include the nation’s wealthiest schools like Harvard University, Yale University and the University of Texas.
“We assessed Swarthmore’s enterprise risk profile as extremely strong, characterized by a history of solid demand including very solid selectivity, matriculation and retention rates, and student quality,” S&P Global Ratings credit analyst Phillip Pena wrote in a report.
Swarthmore bucks a broader trend in higher education in which some small-private schools have struggled to retain students amid cheaper public alternatives. Private schools that have strong endowments and prestigious reputations, like Swarthmore, are more insulated from the pressures.
“The sector has really turned into the haves and have nots,” said Dora Lee, director of research at Belle Haven Investments. “The pressure in the higher education sector have really hit institutions that have weak enrollment and small endowments hard. But institutions that have that endowment cushion — and have distinguished themselves academically — have had significantly less challenges.”
S&P has a stable outlook on the credit indicating the rating is unlikely to change in the near term. That reflects the company’s expectation that “Swarthmore will maintain steady enrollment and its excellent demand characteristics,” analysts wrote in the report.
Its $2.7 billion endowment and ultra-selective application process set it apart. Last fall, the school accepted roughly 1,000 of its 14,707 applicants — amounting to a roughly 7% acceptance rate.
Representatives for Swarthmore referred questions about the deal to Linda Fan, a partner at the Yuba Group, which serves as the financial advisor on the transaction. Fan said she anticipates that the bonds will price well.
The total cost to attend Swarthmore during the 2022-2023 academic year amounted to $77,354 including tuition, fees, housing and food expenses. That is about 14% increase in the last five years, according to bond documents. Peer institutions such as Yale and Columbia University — who also received AAA ratings from S&P — charged more than $80,000 last year.
Moody’s credit analysts pointed to the school’s “exceptional wealth” relative to its operating expenses, in a June report evaluating the credit.
“The college competes with other highly selective and well-endowed institutions, driving the need for capital investment and a premier student experience,” Moody’s analysts wrote.
And though inflation and interest rates remain high “projects need to get done,” Susan Shaffer, vice president at Moody’s said.
Read original article:
https://www.bloomberg.com/news/articles/2023-06-21/swarthmore-poised-to-tap-muni-market-with-rare-aaa-rated-issue?sref=dlv6Ue8o
States, Cities Up High-Coupon Debt Sales
States, Cities Up High-Coupon Debt Sales
By Shruti Date Singh
The sharp jump in interest rates is spurring a boom in higher-coupon debt in the $4 trillion municipal-bond market.
Sales of state and local debt with interest payments set at 5.5% or more have jumped to $8.8 billion in 2023, up 102% compared to the same period last year. That’s the most in at least a decade.
The typical structure for tax-exempt municipal bonds include a 5% coupon with an option to redeem the securities at full value after a decade. Now, governments and Wall Street underwriters are catering to investor demand for securities with higher payouts, which provide greater tax protections from price drops set off by rising interest rates.
In 2022, as the Federal Reserve began to raise rates, annual issuance of higher-coupon muni debt ballooned to $25 billion, more than four-times the 2021 volume. The rate hikes hammered municipal bonds with the steepest losses since the early 1980s.
“The emergence of coupons above 5%, that’s a sign that there is appetite for more coupon protection,” James Iselin, a managing director and head of municipal fixed income at Neuberger Berman Group, which holds about $12 billion of muni assets. “You don’t want bonds trading at deep discounts.”
Iselin said that raises the risk that bonds will be snared by the federal government’s de minimis rule, which requires investors to pay higher taxes on the capital gains from bonds purchased at a deep discount to face value — which has been common for low-coupon debt that tumbled sharply last year. For tax-conscious muni investors, hitting that extra-tax threshold is unpalatable.
Illinois recently offered higher coupons on a sale. The state sold $2 billion of bonds in April that had coupons at or above 5% in all but one maturity.
The issuance of the higher coupon debt along with the recent upgrades the state has gotten has boosted demand and narrowed spreads for the state’s debt, said Max Christiana, a portfolio manager for Belle Haven Investments, which holds more than $15.5 billion in muni assets.
“In the higher interest rate environment, we’ve seen buyers looking for more defensive debt and demanding higher coupons as a result,” Christiana said.
Elk Grove Unified School District, located near Sacramento, California, sold $132.4 million in tax-exempt bonds through a competitive deal on May 31 with a 6% coupon on a bond due in 2028. Under a competitive bid, underwriters select the coupons and reoffering yields for each maturity not the issuer.
“Higher coupons are becoming more popular as interest rates rise,” Kristen Coates, deputy superintendent for business services and facilities in the district, said in an emailed statement.
—with assistance from Eric Kazatsky
US Public Transit Systems Face Credit Downgrades as Riders Stay Away
US Public Transit Systems Face Credit Downgrades as Riders Stay Away
By Skylar Woodhouse
June 6, 2023 at 1:45 PM EDT Updated on June 6, 2023 at 5:14 PM EDT
US public transit systems have faced a slew of challenges from trying to bring riders back after a pandemic-induced slump to struggling with financial shortfalls. The latest hurdle will be trying to avoid credit-rating downgrades that will make borrowing more expensive.
California’s Bay Area Rapid Transit District had its credit rating lowered two-notches to A+ by S&P Global Ratings last week. That revision also cited a negative outlook on its score, indicating future downgrades may be likely.
It’s one of several public-transit agencies put on notice by S&P, including the San Francisco Municipal Transportation Agency and DC’s Washington Metropolitan Area Transit Authority. Both S&P and Moody’s Investors Service have negative outlooks on the public-transit sector broadly.
“I do expect to see downward rating pressure as these systems try to find a way to operate in this new normal,” said Dora Lee, director of research at Belle Haven Investments. “How hard it will be is truly determined on how state level actors are committed to seeing these systems survive.”
Transit agencies across the US are already facing budget shortfalls in the coming years as federal Covid aid evaporates and persistent remote-work trends suppress weekday ridership. Credit-rating downgrades would likely raise borrowing costs for accessing the $4 trillion municipal bond market exasperating financial pressures.
New debt sales by public transit systems are already depressed. Municipal-bond issuance for mass transportation totaled about $4.3 billion this year, down about 44% from the same period in 2022 and the lowest since 2018, according to Refinitiv data as of May 25.
As costs mount and those federal dollars run dry, the systems are reliant on state bailouts to avoid service cuts, layoffs and fare-hikes.
New York Governor Kathy Hochul gave the largest mass-transit provider in the US, the Metropolitan Transportation Authority, a major cash infusion in April. In the state’s most recent budget, lawmakers raised a tax on New York City’s largest businesses to bring in about $1.1 billion for the agency.
Not all states have been so generous as revenue declines make spending decisions harder. California Governor Gavin Newsom has offered no new funding for transit system budgets amid a state cash crunch, despite systems pleading for $5.15 billion over the next five fiscal years.
“We are seeing interest and dollars out there to support transit systems, but there has also been some more challenging stories like what we’ve seen in California,” Baye Larsen, vice president for Moody’s said. “Mass transit enterprise ratings are more vulnerable to the declining fare revenues to the decline in federal stimulus aid.”
Empty Bucket
Bay Area Rapid Transit, which services six million people in Northern California, has an unusually high dependency on fares, making it more susceptible to pandemic-induced shortfalls. But S&P analyst Kurt Forsgren said that all systems are on their radar.
“They are all kind of suffering in some extent, but clearly BART is ahead of the pack,” Forsgren said in an interview. “We are keeping an eye on all systems and how they address this sort of empty bucket that was previously addressed with passenger fares.”
James Allison, a spokesperson for BART, said they are “concerned” about how its outstanding debt is evaluated by rating companies and investors. The agency, like its peers nationwide that are reliant on riders to produce revenue, have begun to adjust to the post-pandemic landscape, he said.
The agency doesn’t currently have plans to halt capital projects or cut service to make up for increased borrowing costs, Allison said.
Meanwhile, the transit system that runs through the nation’s capitol has rebounded to only about half of its pre-pandemic ridership. Washington Metropolitan Area Transit Authority chief financial officer Yetunde Olumide said the system needs a long-term funding plan which addresses operational, maintenance and capital needs.
And the Chicago Transit Authority has recaptured roughly 60% of its passengers. In March, Moody’s analysts said that if there is a decline in ridership and regional sales taxes, the system could see a downgrade.
“Based on conversations to date with the State legislature, we are optimistic about receiving additional funding,” Maddie Kilgannon, a CTA spokesperson, said in a statement. “We believe a funding solution will be viewed positively by the rating agencies.”
Read original article:
https://www.bloomberg.com/news/articles/2023-06-06/transit-systems-face-downgrades-as-us-riders-aren-t-returning?sref=dlv6Ue8o
New Jersey Senior-Living Facility’s Woes Exacerbated by Construction Delays
By Lauren Coleman-Lochner
June 2, 2023 at 1:23 PM EDT Updated on June 2, 2023 at 3:09 PM EDT
An assisted-living complex for low-income senior residents in southern New Jersey has been struggling to make timely monthly loan payments.
New Standard Senior Living said construction delays at its Village Drive campus in Millville has impeded its ability to lease units and choked its cash flow, according to a recent regulatory filing.
While such holdups have been a nationwide problem across industries, for health care they are one more added stress that can be crippling. Higher labor and supply costs, not to mention changing preferences that predate the pandemic, have made it difficult for numerous facilities to meet their financial obligations.
The senior-living industry, which includes bonds sold by retirement, nursing and assisted-living facilities, has been an outlier in the $4 trillion municipal bond market. About $5 billion of senior-living bonds are in either distress or default, roughly 11% of the sector’s outstanding debt, according to data compiled by Bloomberg.
Health-care debt, which includes senior living facilities, is the worst performing sector within high-yield municipals in 2023, losing 0.13%, the only negative return.
“While muni credit is likely to remain healthy, there is a small universe of credits that will remain challenged, mostly in the senior living, health care, and industrial revenue sectors,” Barclays analysts Mikhail Foux, Clare Pickering and Mayur Patel wrote in a recent note.
The New Jersey Health Care Facilities Financing Authority issued $23 million in revenue bonds in 2018 for construction of New Standard’s facility in Millville. The complex, which offers 154 pet-friendly, single-occupancy studios with private baths, opened about 10 months ago and is currently 60% occupied, according to Drew Barile, president and chairman of Noble Senior Services and New Standard Senior Living. The construction challenges delayed the facility’s opening and subsequent resident enrollment.
Even without construction problems, it’s hard for senior-living facilities “to make the economics work,” said Dora Lee, director of research at Belle Haven Investments. “There’s been a very big divergence between the private-pay senior-living facilities and the ones that rely more on Medicaid and Medicare.”
About 80% of residents at New Standard are Medicaid-funded, according to Barile. Facilities that have a larger number of low-income residents are scarce and struggle financially because government reimburses at a lower rate than private insurers, Lee said.
“COVID did create massive supply-chain and labor disruption contributing to serious challenges that we had to overcome,” Barile said in an email. He said the delays caused “market confusion” which they are addressing “aggressively.”
Barile said that currently, “all payments have been made within required parameters.” According to the filing, the facility has used loans from members and related parties in order to make late payments to the Trustee.
New Standard is not alone. There were regulatory filings detailing impairments at three other senior-living facilities, in Colorado, Tennessee and Illinois this week.
“We are likely to see increased defaults from this universe,” said the Barclays analysts. “Muni credit events tend to have a much longer lag from economic downturns.”
— With assistance by Shruti Singh and Trevor Rowe
Read original article:
https://www.bloomberg.com/news/articles/2023-06-02/nj-senior-living-facility-s-woes-exacerbated-by-construction-delays?srnd=citylab&sref=dlv6Ue8o
Belle Haven Investments named to 2023 Best Companies to Work for in New York
Belle Haven Investments named to 2023 Best Companies to Work for in New York
RYE BROOK, N.Y., April 24, 2023 /PRNewswire/ -- Belle Haven Investments is proud to announce that it has been named as one of the 2023 Best Companies to Work for in New York by The New York State Council of the Society for Human Resource Management, Best Companies Group and Rochester Business Journal. This is the fifth time the Firm has received this recognition.
Belle Haven's culture is built on a foundation that leverages mutual respect, teamwork, and passion. Commitment to shared success is at the heart of what they do. That is why they believe that hiring and retaining individuals with a diverse set of talents, perspectives, and experiences generates better ideas, creates a more creative work environment, and empowers employees to bring their whole self to work. The Firm is committed to maintaining an inclusive organization where all employees feel heard, valued, and respected.
Best Companies to Work for in New York identifies, recognizes, and honors the best places of employment in New York in three categories: small companies (15-99 employees), medium companies (100-249 employees), and large companies (250 or more employees). To be considered, companies must have at least 15 full-time or part-time employees working in New York; be a for-profit or not-for-profit business or government entity; be a publicly or privately held business; have a facility in the state of New York and be in business a minimum of one year.
Best Companies Group managed the overall registration and survey process and also analyzed the data and used their expertise to determine the final rankings.
For a complete list of the 2023 winners, visit: https://rbj.net/event/best-companies/.
About Belle Haven Investments
Based in Westchester County, New York, Belle Haven Investments is an independent, employee-owned money manager specializing in separately managed taxable and tax-exempt fixed income portfolios. The Firm's expertise and focus in one asset class have resulted in award-winning strategies. Their goal is to provide an unrivaled level of service, reliability, and customization to their Partners in building what they hope are partnerships for years to come.
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Wall Street Boosts States’ Credit Scores as Recession Worries Cloud Outlook
By Skylar Woodhouse
April 19, 2023 at 10:57 AM EDT
The flood of US pandemic aid that flowed into state treasuries helped balance budgets and raise bond ratings. Now the question is whether a recession will halt states’ financial progress.
“If we have a very deep and sustained recession, we might see the credit quality or the ratings being adjusted,” said Dora Lee, director of research for Belle Haven Investments. “If we have a pretty mild recession, it is highly unlikely that these upgrades will be reversed.”
Illinois, Massachusetts and New Jersey this year have garnered higher credit scores from rating companies, including brighter outlooks for the states as well. The upgrades also helped shrink bond yield spreads in the primary and secondary municipal markets, signaling investor perception of state debt is improving.
The better state ratings are due in part to the positive effect of federal pandemic aid, which some states used for one-time expenses while others set cash aside for the future. State treasuries also saw an influx of tax revenue from residents — bolstered by US stimulus money sent to individuals — who spent on services at home at the height of the pandemic, and on travel after Covid lockdowns were eased.
Still, a slowdown in the US economy this year is causing concern that states can no longer expect a cash haul. The likelihood that the economy in the next 12 months will slide into a recession is greater now than a month earlier, according to a March 20-27 Bloomberg survey of 48 economists.
The poll, conducted after several bank closures roiled financial markets, put the odds of a contraction at 65%, up from 60% in February, amid interest-rate hikes by the Federal Reserve and growing risks of tighter credit conditions.
“Right now every state seems to have a fiscal position with sufficient flexibility, that we view as able to get through a mild, shallow recession,” Geoffrey Buswick, government sector leader at S&P Global Ratings, said in an interview. “Typically some states within a longer recessionary cycle will face great credit pressures.”
While many economists anticipate any recession will be relatively shallow, there are some who are warning of a deeper drop. “There remains a very real risk that the US could be about to enter a prolonged recessionary period,” a report last month from Teneo Holdings said.
Sunny Skies
For the moment, states continue to enjoy an improved status on Wall Street. The Commonwealth of Massachusetts was upgraded from AA positive to AA+ stable by S&P on Friday. Its general-obligation debt is just one step below the highest level for the first time since 2008.
In February, Illinois improved to A- from BBB+ stable at S&P. And in March, the state was upgraded a level to A3 from Baa1 by Moody’s Investors Service and had its outlook changed to positive from stable by Fitch Ratings Ltd.
New Jersey was raised to A1 from A2 by Moody’s this month. Also in April the state went to A stable from A- positive at S&P and A+ stable from A positive at Fitch Ratings. The upgrades came after state officials in the last two fiscal years made full pension contribution payments for the first time in decades, reducing New Jersey’s unfunded retirement liability.
S&P anticipates a shallow recession, but says if a contraction were to linger some states could see credit impacts. Fitch also says that due to the aggressive Fed tightening to arrest inflation there will be a mild recession in 2023.
“If the downturn becomes much more severe and much deeper than we’re anticipating, that does raise risk and there’s the potential that there would be more negative rating action,” said Eric Kim, a Fitch analyst. “But that’s not what we’re anticipating. Our ratings build in an expectation of a moderate downturn. If things get much deeper and much weaker, there’s more risk there.”
— With assistance by Sue Lucas
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Largest Catholic University in US Faces $56 Million Budget Gap
Largest Catholic University in US Faces $56 Million Budget Gap
By Nic Querolo
April 14, 2023 at 2:41 PM EDT
DePaul University is facing financial pressure after the pandemic intensified declining enrollment and widened the Chicago private school’s budget gap.
To narrow the growing gap between revenue and expenses the largest Catholic university in the US is starting to cut its budget. It is offering a voluntary separation program to about 15% of the school’s 1,400 full-time staff and administration, according to an April 4 notice by DePaul University President Robert Manuel, faculty are ineligible. School officials project a shortfall of $56 million for the fiscal year beginning July 1, barring cost-cutting measures.
Higher education institutions across the country, in particular small private schools without the cushion of a large endowment, are facing financial strain as pandemic stimulus fades and students become increasingly leery of expensive loans at higher interest rates. Many students are even turning to alternative paths after graduating from high school.
“DePaul is facing a lot of the same challenges that a lot of their peers are facing, especially in the Midwest,” said Emily Wadhwani, a senior director at Fitch Ratings. Those challenges include post-Covid recruiting as students weigh alternatives, alongside inflation pushing the cost of expenses like wages and utilities higher.
University-wide enrollment at DePaul fell 3.5% year over year to 20,917 students in 2022. Since 2018, total enrollment fell 6.8%, with steep declines more recently among graduate students, according to data from the school. Nationally, undergraduate enrollment fell 9% to 15.9 million students between 2009 and 2020, according to data from the National Center for Education Statistics.
Manuel and DePaul University’s nine-member Strategic Resource Allocation Committee will need to submit a budget proposal to the board for approval in May.
“Currently, the university is engaged in its annual budgeting process, and is working to close a budget gap in order to meet its budgeted operating income for fiscal year 2024,” said spokesperson Kristin Claes Mathews in an emailed statement. “These activities will not impact the university’s outstanding debt, and we do not expect to issue any additional new debt.”
Wadhwani also stressed the budget gap is only about 10% of total revenue — a sum she said is significant, but not insurmountable.
“Our first concern is can they pay debt service — the answer here is definitively yes,” she said. DePaul has about $240 million of bonds and notes payable, about $186 million of which is public debt.
In the spring of 2020, DePaul was facing an $11 million budget gap but leadership delayed cost-saving measures to give the school flexibility during the pandemic, which exacerbated financial challenges.
DePaul received authorization for $77 million of stimulus funds as of June 2021, according to Fitch Ratings, and about $34 million of those funds were earmarked for student aid.
Many universities faced similar pressures before the pandemic, according to Dora Lee, director of research for Belle Haven Investments, who said Covid stimulus helped only temporarily.
“The federal aid papered over some of those stresses,” Lee said. “As that aid is sunsetting, we are seeing those same pressures re-emerge.”
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https://www.bloomberg.com/news/articles/2023-04-14/depaul-university-faces-growing-budget-gap-as-enrollment-shrinks?sref=dlv6Ue8o
Illinois Bonds Surge Fueled by Credit Upgrades, Improved Revenue
Illinois Bonds Surge Fueled by Credit Upgrades, Improved Revenue
By Shruti Date Singh
Illinois’ bonds are rallying amid better-than-expected revenue and back-to-back credit upgrades.
An index of bonds sold by the state and its municipalities is up 2.7% since the start of the year, outpacing the 2.1% gain in the $4 trillion municipal-bond market’s benchmark index, according to data compiled by Bloomberg. And investors are demanding a smaller penalty to hold debt sold by Illinois, thanks to an improving financial outlook for the worst-rated US state.
One state of Illinois security due in 2033 traded with an average spread of 102 basis points over the benchmark on Tuesday, narrower than the last time the bonds changed hands at 145 basis point spread in late January, according to data compiled by Bloomberg.
The rally has been spurred by dual credit rating upgrades by S&P Global Ratings and Moody’s Investors Service, which allowed the Land of Lincoln to shed its position as the only US state without an A-level rating. Illinois’s bipartisan budget forecaster also raised its revenue outlook earlier this month. Investor sentiment has also turned more positive after the state started passing budgets on time, paid down billions in backlogged bills, built up a rainy day fund and boosted contributions to its severely underfunded pensions.
“Two upgrades into the A category is a big deal and I think you’ve seen a transformation,” said James Iselin, a
managing director and head of municipal fixed income at Neuberger Berman Group LLC, which owns Illinois debt as part of $11 billion of muni assets. “This is quite a turnaround story.”
This is a stark change from just several years ago when investors feared Illinois may be downgraded into junk as revenue plummeted and borrowing costs surged with 10-year state bond yields widening to a whopping 4.4 percentage points more than top-rated debt in May 2020. That forced Illinois to be one of only two issuers and the sole state to borrow from the Federal Reserve’s emergency lending arm during the depths of the pandemic.
When the national economy rebounded bolstered by federal aid, tax revenue filled coffers and allowed the state to pay down some of those long-time liabilities. Now, investors are demanding less of a concession for holding the state’s bonds. Ten-year Illinois bond spreads are hovering around 120 basis points more than top-rated securities, according to data compiled by Bloomberg.
That market confidence may help the state get a better rate when it borrows for the first time this year. Illinois plans to sell as much as $2.5 billion of general obligation bonds before June 30 to finance capital projects, its pension buyout plan, and refund currently callable bonds, according to Governor J.B. Pritzker’s budget office.
‘Tightly Held’
The state’s general obligation bonds are “tightly held” after a drop-off in new municipal bonds which has amplified the spread compression, Iselin said in an interview. Investors want to keep Illinois debt to hold a yield attached to an improving credit and because it’s hard to replace those bonds with other comparable securities, he said.
“Broadly, riskier credits that widened during 2022’s selloff are tightening as specific metrics improve for these types of credits,” Kimberly Olsan, senior vice president of municipal bond trading at FHN Financial , said in an email. “The other component adding to tighter conditions is that supply remains muted and secondary inventories are challenged for product.”
Long-term municipal sales through March 21 are down 18% this year, the slowest start to a year since 2018,
according to data compiled by Bloomberg. Investors are seeking refuge from the global banking crisis in the low default municipal market.
“Illinois bonds have benefited from a convergence of a positive credit story and recent upgrades with a period of low supply and a general flight to quality resulting in muni inflows,” said Dora Lee, director of research at Belle Haven Investments, which holds Illinois debt as part of about $15 billion in muni assets. “With so many inflows and so little supply, it’s like the toilet paper shortages at the beginning of the pandemic for high quality bonds.”
Chicago’s Next Mayor Must Have a Plan to Tackle the City's $34 Billion in Pension Debt
By Shruti Singh
March 2, 2023 at 3:17 PM EST
Chicago is guaranteed a new mayor after voters rejected incumbent Lori Lightfoot’s bid for a second term. With the looming leadership change, investors want to know whether the city will keep up recent financial momentum or return to old bad habits.
The third-largest US city escaped from junk-rating territory late last year after paying more into its long-strained pensions that are still short nearly $34 billion. The mayoral runoff contenders — Cook County Board Commissioner Brandon Johnson and Paul Vallas, the former Chicago schools chief, have starkly different approaches for how to address that shortfall and the rest of the challenges facing its 2.7 million residents.
“Preserving and furthering the financial and credit improvements should be a top priority for any candidate,” said Dora Lee, director of research at Belle Haven Investments, which holds Chicago debt as part of $15 billion in muni assets. “Campaign promises are very easy to make but very hard to execute. However, they will be easier to accomplish if the city is on a sound financial footing.”
The city has long struggled with pension debt and chronic structural deficits. With about one out of every five budget dollars going to pensions, there’s less money available for crucial services like policing. This comes as the city struggles with rising crime, a key issue that contributed to Lightfoot’s loss. Both Vallas and Johnson have promised to make the city safer and more equitable for residents but differ on how to fund their plans.
Johnson, who is backed by the Chicago Teachers Union, and Vallas, who is endorsed by the police union, have laid out high-level plans. Neither were immediately available for an interview.
According to his campaign website, Johnson, 46 wants to raise taxes on companies that profit from doing business in the city, including hotels, and airlines that pollute the city’s air. He would reinstate the so-called “big business head tax” with a $4 per employee levy on companies that perform 50% or more of their work in Chicago. He’s also proposing a “mansions tax” on the transfer of high-value properties and a levy on securities trading, which the city’s exchanges have opposed.
Vallas, 69, the front-runner who won nearly 34% of the Feb. 28 vote compared to Johnson’s 20%, has an entire page on his campaign website devoted to pension funding. He would put the city’s retirement funds under the direction of independent professional investment managers who are held accountable for performance. His plan also leans heavily on working with state officials to secure more funding.
Vallas also would consider tapping surpluses from tax increment financing districts to fund pension obligation bonds, according to his campaign website.
One major point of agreement: both Vallas and Johnson have said they won’t raise property taxes, a major source of revenue. Roughly 80% of those levies go to pay retirement benefits.
Under Lightfoot, the city boosted payments to its retirement funds by more than a $1 billion in the last three years to meet statutory funding mandates that kicked in before Covid-19 hit. But her administration went further by putting in $242 million more than required in the 2023 budget. It also advanced roughly half a billion dollars to its funds starting in late 2022 to prevent them from selling assets during a market rout.
The increased pension funding led to credit upgrades, including one in November from Moody’s Investors Service that lifted its rating from junk to investment grade for the first time since 2015. The previous month, Fitch Ratings had raised the city’s credit by one level to BBB with a positive outlook.
“While it’s too early to gauge the impact of any new administration’s fiscal policies and financial management, Chicago’s ‘BBB’ rating and positive outlook hinge upon the city sustaining its commitment to maintaining high budget reserves and actuarial pension funding,” Michael Rinaldi, a senior director for Fitch, said in an email.
Chicago is continuing to recover financially from the pandemic, with revenue growing and budget shortfalls shrinking since the worst of 2020 and 2021 partly thanks to to federal aid, according to Sarah Wetmore, acting president of government fiscal watchdog the Civic Federation.
“There are still a number of issues the city faces going forward, including still high levels of violence, a public transit system struggling with reliability issues and decreased ridership as well as substantial projected budget deficits in coming years once federal pandemic funding runs out,” Wetmore said.
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Belle Haven Investments Named "Manager of the Decade" Five Times by PSN Informa
Quarterly PSN Top Guns List published by Zephyr identifies best-in-class separate accounts, managed accounts, and managed ETF strategies
RYE BROOK, N.Y., Feb. 22, 2023 /PRNewswire/ -- Belle Haven Investments has three strategies that have each been awarded Top Guns Manager of the Decade distinction for the 10-year period ending Q4 2022.
Muni PLUS was awarded Manager of the Decade in the Municipals Universe. Taxable PLUS was awarded Manager of the Decade in both the Core Fixed Income and US Fixed Income Universes for the fourth consecutive year. Taxable Ladder PLUS was awarded Manager of the Decade in the Core Fixed Income Universe for the third consecutive year and for the first time in the US Fixed Income Universe.
Muni PLUS is Belle Haven's flagship, actively managed separate account strategy that invests in tax-exempt municipal bonds. Taxable PLUS and Taxable Ladder PLUS are actively managed separate account strategies that invest in taxable municipal bonds, corporate bonds, agencies and treasuries.
Additionally, several of Belle Haven's separately managed account strategies received the following designations for the fourth quarter of 2022:
Taxable Ladder PLUS – 4 Stars – Core Fixed Universe
Taxable Ladder PLUS – 5 Stars – Core Fixed Universe
Taxable PLUS – 4 Stars – Core Fixed Universe
Taxable PLUS – 5 Stars – Core Fixed Universe
Taxable PLUS – 6 Stars – Core Fixed Universe
3-17 Year Ladder – 1 Stars – Intermediate Maturity Universe
3-17 Year Ladder – 1 Stars – Municipals Universe
3-17 Year Ladder – 4 Stars – Municipals Universe
Cash Management – 3 Stars – Less than 1 Year Mat Universe
"It is quite an honor to have our strategies recognized as top performers in their respective universes." said Matt Dalton, CEO & CIO of Belle Haven Investments. "We believe our disciplined approach and focus on long-term risk-adjusted returns have and will continue to allow us to produce compelling results for our clients."
Through a combination PSN's proprietary performance screens, the PSN Top Guns List ranks products in six proprietary categories in over 75 universes based on continued performance over time.
Belle Haven Investments' Muni PLUS, Taxable PLUS and Taxable Ladder PLUS strategies were all named Top Gun Manager of the Decade, meaning these strategies had an r-squared of 0.80 or greater relative to the style benchmark for the latest 10-year period. Moreover, the strategy's returns were greater than the style benchmark for the latest 10-year period and also standard deviation less than the style benchmark for the latest ten-year period. At this point, the top ten performers for the latest 10-year period become the PSN Top Guns Manager of the Decade.
Top Guns 1-Star Criteria: Product had one of the top ten returns for the quarter in their respective strategy.
Top Guns 3-Star Criteria: Product had one of the top ten returns for the three-year period in their respective strategy.
Top Guns 4-Star Criteria: Product had an r-squared of 0.80 or greater relative to the style benchmark for the recent five-year period. Moreover, the strategy's returns exceeded the style benchmark for the three latest three-year rolling periods. The top ten returns for the latest three-year period then become the 4 Star Top Guns.
Top Guns 5-Star Criteria: Product had an r-squared of 0.80 or greater relative to the style benchmark for the recent five-year period. Moreover, the strategy's returns exceeded the style benchmark for the three latest three-year rolling periods. Products are then selected which have a standard deviation for the five-year period equal or less than the median standard deviation for the peer group. The top ten returns for the latest three-year period then become the 5 Star Top Guns.
Top Guns 6-Star Criteria: Product had an r-squared of 0.80 or greater relative to the style benchmark for the recent five-year period. Moreover, the strategy's returns exceeded the style benchmark for the three latest three-year rolling periods. Products are then selected which have a standard deviation for the five-year period equal or less than the median standard deviation for the peer group. The top ten information ratios for the latest five-year period then become the 6 Star Top Guns.
The complete list of PSN Top Guns and an overview of the methodology can be located at https://psn.fi.informais.com/. Registration is required.
About BELLE HAVEN INVESTMENTS
Belle Haven Investments is an independent money manager specializing in separately managed taxable and tax-exempt portfolios since 2002. The firm is uniquely committed to serving Consultants and Advisors along with the Institutions, Foundations, Family Offices and High Net Worth individuals whom they represent. The team's expertise and focus in the fixed income asset class has resulted in award-winning strategies. Belle Haven is a Registered Investment Advisor with the Securities Exchange Commission (SEC). For more information, please visit www.bellehaven.com
About PSN
For nearly four decades, PSN has been a top resource for investment professionals. Asset managers rely on Zephyr's PSN to effectively reach institutional and retail investors rely. Over 2,800 firms, 285 universes, and more than 21,000 products comprise the PSN SMA database showing asset breakdowns, compliance, key personnel, ownership diversity, ESG, business objectives and strategy, style, fees, GIC sectors, fixed income ranges and full holdings. Unique to PSN is its robust historical database of nearly 40 Years of Data Including Net and Gross-of-Fee Returns. For more details on the methodology behind the PSN Top Guns Rankings or to purchase PSN Top Guns Reports, contact Margaret Tobiasen at Margaret.tobiasen@informa.com. Visit PSN online to learn more.
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A Small Catholic College's Closure Hints at More to Come
A Small Catholic College's Closure Hints at More to Come
By Allison Nicole Smith
January 24, 2023 at 1:06 PM EST
Economic strains that have pushed a number of colleges and universities to the brink show no signs of stopping, with Holy Names University in Oakland, California, the first to default on its debt in 2023.
The Roman Catholic school with fewer than 1,000 students defaulted on a $49 million loan, according to a Jan. 3 filing, after the almost 155-year-old institution announced it would be closing its doors at the end of the academic year.
The closure is likely a harbinger of what’s to come as S&P Global Ratings has warned less selective, regional institutions will struggle in the new year. Growing competition, falling enrollment trends and higher expenses could weaken credit quality. At the same time, waning risk appetite ahead of a looming recession means struggling schools’ access to the $4 trillion municipal-bond market could be limited.
“It boils down to a supply and demand issue,” said Lisa Washburn, managing director at Municipal Market Analytics. “We’ve just got too many seats for too few students. Add to that rising costs and a pandemic, and some schools just become uneconomical to run.”
With a projected decline in US high school graduates, it’s an issue more universities are facing. But the pain is especially apparent at small, religious colleges with high acceptance rates.
Georgian Court University, a Catholic school in New Jersey, was downgraded into junk by Moody’s Investors Service Thursday, citing declining enrollment and strained revenue. Presentation College, a Catholic institution in South Dakota, announced plans to close early last week. And Birmingham-Southern College, a liberal-arts school affiliated with the United Methodist Church, is asking for $37.5 million to keep its doors open.
Rising costs, exacerbated by the pandemic, have contributed to Fitch Ratings’s “deteriorating” outlook on the higher education sector. In 2020, Holy Names reported operating losses of $8.6 million, followed by $4.2 million in 2021. However, the university was already struggling in 2019 when it tapped the municipal-bond market for $49 million to pay off old debt and fund capital expenditures.
Tuition at Holy Names — a predominately-Hispanic and Black university, where roughly half of students qualify for Pell Grants — costs about $52,000 a year, including meals and housing.
A five-year plan initiated in 2019 intended to boost enrollment, but only 943 students were enrolled this past fall, missing projections by nearly 40%. Spring enrollment was even worse after the university said in November it was looking to merge with another school to cover expenses. Only 449 students enrolled.
Ultimately, Holy Names did not find a suitor — in what appeared to be a difficult search, according to a Dec. 14 letter by student body president Ruby Mayne to the board of trustees. The university missed multiple deadlines for an update to students, resulting in “rampant rumors” and “a scramble to meet transfer deadlines.”
Moreover, its failure to merge with another school highlights how vulnerable smaller colleges are in an oversaturated market, said Dora Lee, director of research at Belle Haven Investments.
About $687 million of outstanding debt sold for US colleges and universities has defaulted or has payments at risk, according to data analyzed by Bloomberg.
“The fact that it wasn’t assumed by another higher-ed facility shows that while we do expect mergers and acquisitions, merging your way out of these problems might not be an option for a lot of these small colleges,” Lee said. “In this high-interest rate environment, the closure of Holy Names is a theme that we expect to continue.”
Neither Holy Names nor Preston Hollow Community Capital, the majority bondholder, responded to requests for comment.
— With assistance by Nic Querolo and Trevor Rowe
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https://www.bloomberg.com/markets/fixed-income?sref=dlv6Ue8o