<p>OK... Total and complete novice here. Actually, I don't think I'd even qualify as a novice. So what's the difference between Aaa and Aa2 and A2?</p>
<p>And how would one find out if the people behind the fund management of any school is actually good at his/her job - which is pretty much what that first article says will make the difference in future performance. And I would think if your name is NOT on that impact PDF, you're probably doing fairly poorly since not responding was going to not work in your favor.</p>
<p>"So what's the difference between Aaa and Aa2 and A2?"</p>
<p>From a credit standpoint, you'd have to read the reports on ratings criteria, has to do with everything that goes into their review of long term financial outlook; likely enrollment, degree of confidence in stability of revenue stream, amount by which reliable projected revenues exceed debt repayment obligations. The issue is, ultimately, how certain is it that the debt being rated will be repaid. The more certainty/ margin for error, the higher the rating.</p>
<p>From a borrower's standpoint : a slightly different interest rate on borrowings. In the past such differential was often not very high; some places that avoided borrowing simply to preserve their "Aaa" did so more for pride/ bragging rights than for ultimate advantage. IMO. Who knows, maybe a little of this is going on here as well.</p>
<p>"For reasons that are way above my pay grade, it is apparently hideously expensive to buy-out the interest rate swaps right now."</p>
<p>The swap may have been: for the term of the swap agreement, Harvard receives a floating payment = to what it has to pay on its VRDNs, but in return pays the swap counterparty a fixed rate. If that fixed rate was higher than today's fixed rate, for the remaining term of that swap agreement, then the swap counterparty would have to be paid a premium to unwind the deal.</p>
<p>Just making up numbers: if the swap had 4 years left, and the current rate for 4 year floating to fixed swaps rate is 6%, but harvard was paying a 7% rate because that was the market when it entered into the swap, it will have to pay up to to unwind the swap, to make the counterparty whole. Because now when the counterparty turns around to replace that swap it will only get 6% for the next four years, instead of the 7% it had contracted with Harvard to get.</p>
<p>So the amount of the unwind payment, if any, would depend on what the rate was on the swap being unwound, vs. today's interest rates. Which would depend on what the rate environment was like when a particular swap was initiated. And also the remaining term of the swap. It won't be the same for all swaps, generically.</p>
<p>Does anyone know the financial position of vassar? Catherinne Bond is the president and she is an economist and a very smart person from everything I've read. Interestingly, she was in some position at Williams before taking the presidency at Vassar. Anyway, of course building projects are on hold, but what about the amount frozen in the common fund?<br>
And, because of the money being frozen, I understand Vanderbilt has had to borrow money.
The only good thing is that our kids are in school and not looking for jobs at this time!</p>
<p>Thanks to interested and mony-dads for a discussion so far beyond me it will just have to be my personal tragedy. Still, I know where to come to re-read and re-read. I'm reassured that there are people in the world (two, anyway) who understand it.</p>
<p>There are some grades below that, but I think they would be classed as speculative rather than investment grade bonds. The lower down the scale, the more likely that a school will actually have to pledge assets to cover the bonds. Amherst doesn't. There bonds are just backed by the faith and credit of the school.</p>
<p>The difference between Aaa and Aa1 is very slight. Schools bounce back and forth between those two highest ratings from time to time. Like anything else, per student endowment is going to correlate with the highest ratings. It's no surprise that the six LACs with the Aaa ratings are six of the seven highest per student endowment LACs in the country (Pomona, Grinnell, Amherst, Swarthmore, Wellesley, and Berea). Williams is the other and they have an Aa1 rating.</p>
<p>It's a 96 page PDF that covers every region of the world. The section on each region ends with the sample reports for a handful of schools -- reports that would normally cost several hundred dollars. Starting on page 86 at the end of the U.S. section are the full credit ratings reports for Columbia, the University of Missouri, Swarthmore, University of California, and Stanford.</p>
<p>Here's what the Amherst 2008 annual report says about their interest rate swaps:</p>
<p>
[quote]
In connection with the issuance of the Series I and Series J bonds, the College entered into interest rate swap agreements to moderate its exposure to interest rate changes and to lower the overall cost of borrowing. The interest rate swap agreements effectively change the interest rate exposure on the issues from a variable rate to a fixed rate of 3.07% for Series I and 3.13% for Series J. The interest rate swap agreements have a notional amount and termination date equal to the principal amount and maturity
date of the respective bonds. On June 30, 2008, the fair value of the interest rate swap agreements of $452,497 was recorded in other liabilities on the balance sheet. The total of the decrease in the fair value from the prior year balance and the offsetting net settlements equal $5,538,932 and is included as an expense on the College’s Statement of Activities for the year ended June 30, 2008.
[/quote]
</p>
<p>BTW, Amherst issued $60 million or so in tax-exempt bonds on January 15 last month. About $7 million appears to have been fixed rate. About $53 million appears to have been variable rate (based on the bond rating blurb from Moody's). As near as I can tell, this money was earmarked for the next four dorms under renovation -- two that were just completed, two that are under construction.</p>
<p>
[quote]
i guess this begs the question, how long can amherst hang onto a Aaa Moody's rating? So long as the economy doesn't get any worse?
[/quote]
</p>
<p>I think all of the top colleges have to stop the borrow and building sprees they've been on to maintain their current ratings. The've all taken a big hit to their endowments, so the ratings agencies are going to be looking at how management responds and adjusts.</p>
<p>Somebody asked about Vassar. They appear to be OK. Debt is pretty low at just $125 million -- fixed rate, I think. Their cash call committments to hedge funds and private equity partnerships are small. I think under $100 million total. I'm not confident that I can tell what they have been spending from the endowment. It may be a bit on the high side as they attempt to catch up to some deferred maintenance. They haven't done a lot of building.</p>
<p>Vassar's problem has been that they grew too large and diluted their endowment, so their per student endowment is pretty low. As a result, they are highly dependent on tuition revenues. With a high percentage of full-pay customers, they have one of, if not the highest net student revenues around: $36,000 per student after financial aid. So they could be vulnerable to pretty big increases in financial aid.</p>
<p>But, nothing that looks any worse that your typical high end college. </p>
<p>BTW, there's strong money in Ephland that Cappy Hill will be tapped to replace Morty Schapiro as President of Williams. The question is whether she can honorably leave Vassar so soon.</p>
<p>On Vanderbilt. They had a ton of dough frozen in the CommonFund. So much cash they couldn't access that they almost missed a payroll in October. The liquidity issues have been the story of the economic crisis so far.</p>
<p>
[quote]
MonyDad:
Now you guys get some inkling about the types of things some of these evil, blood-sucking investment bankers might be doing on a daily basis..
[/quote]
</p>
<p>What? Confuse the hell out of me? :) I just know that when the acceptances have to be weighed I am PMing you and Interestedad!!</p>
<p>Thanks, again, idad & mdad for more info here & links elsewhere. </p>
<p>@92: Reference to Vassar's depleted endowment brings to mind Wesleyan. As I recall, its endowment also declined way before the current economic crisis. Am I remembering correctly & can either of you shed light on the reason?</p>
<p>Same thing. Vassar, Wesleyan, and Oberlin all increased their enrollment significantly following the end of the baby boom. So did Williams, but Williams stopped in 1980 and has barely increased enrollment at all since then. </p>
<p>Vassar has 2400 students. Oberlin has 2800 or so. Wesleyan has 3200. Oberlin was actually planning to shrink its enrollment by 100 students to strenghten its financial position.</p>
<p>You are going to see a lot of colleges increase their enrollment (without an offsetting increase in faculty, dorms, or services) to bolster the short-term bottom line. Amherst is going up by 100 students. Williams is quietly going up. Bowdoin is going up by 50 phased in over five years.</p>
<p>With a high percentage of full-pay customers, they have one of, if not the highest net student revenues around: $36,000 per student after financial aid<</p>
<p>From Ephblog, the alumni-run, all-Williams-all-the-time blog: "Williams student revenue (all tuition/living charges) in 2004 was around $70 million. With about 2000 students, that works out to $35,000 per student."</p>
<p>There are lots of factors that go into this, often offsetting. The sticker price. The percentage of students receiving aid. The average aid. Even the number of students living off campus would have some small impact on the average.</p>
<p>From a non-economist: How much weight do even people who can decipher them (interesteddad, monydad) give to all the numbers? It seems to me that so much is uncertain in the markets now that it would not make a lot of sense to counsel a kid to attend college A rather than college B because of bond ratings or liquidity issues. I do find it interesting; just wondering about the practical, bottom-line for most parents.</p>
<p>well, I think even Wesleyan's per student revenue would be higher if you used only undergraduate data. Wesleyan undegraduate enrollment in terms of full-time equivalents is 2800, barely 250 more than it was in 1980.</p>