The nearly 290-bed residence hall with rents of $3,881 per semester was just 71% occupied this fall, while it needed to be about 92% occupied, said Patricia Schumann, president of the university foundation that sold the debt. Schumann said the university is projected to provide a $75,000 payment in January. In the meantime, she said the school was working to bolster its financial position and boost recruitment and donations.
“We’re not standing still,” she said.
Ohio’s Terra State Community College, which has more than 2,100 students, was downgraded deeper into junk over the risk posed by a dorm owned by a nonprofit, given that the school “appears to provide an unconditional guarantee” to meet the debt obligations, Moody’s said. The project was financed through a bank note.
The dorm’s occupancy fell to 62%, and the college is using a previously-received donation to cover a shortfall in project revenue amounting between $500,000 to $600,000, the ratings company said in a report this month.
At New Jersey City University, a student housing project financed though a separate entity will likely miss a required debt service coverage ratio. The public school having to step in to help the bonds would be a challenge, but a surmountable one, said Jodi Bailey, the university’s associate vice president for student affairs. The student housing bonds aren’t a debt of the university, so the school would be choosing to provide financial support, according to bond documents.
The school is working to cut expenses related to the dorm. “Is it a harder year? Most definitely,” she said.
The student housing bonds, issued by West Campus Housing LLC in 2015, were slashed deeper into junk in September by S&P, which said in a report that residence halls’ occupancy there had fallen to 56% so the school could accommodate social-distancing guidelines.
Helping Out
To provide relief, some universities have deferred lease payments that are owed if student housing projects meet certain debt service coverage levels, said Debra Lockwood, senior adviser and former president of Provident Resources Group, a nonprofit that finances, owns and operates student housing projects.
Provident’s deals, which are sold by separate entities, are structured as project finance deals that rely on the site’s revenue, meaning that typically Provident and the related college aren’t legally obligated to step in to support debt repayment, Lockwood said.
Dorms at Howard University in Washington, D.C., financed through a Provident-affiliated entity, were virtually empty at the end of August after the college moved classes online, according to a regulatory filing. It’s likely that the borrower will use surplus funds to make bond payments in 2020, according to S&P, which slashed the debt further into junk in August.
Provident’s Lockwood said there is a great deal of uncertainty around reopening plans in the spring and that her team was working to model different scenarios on its projects. She said colleges could be incentivized to go back given that so-called auxiliary revenue from sources outside tuition -- like dorms -- is hurting.
This article was provided by Bloomberg News.