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Ratings agency warns Simmons about debt

The quad on the campus of Simmons College in Boston.
The quad on the campus of Simmons College in Boston.KAYANA SZYMCZAK/New York TImes/File/2018

A key rating agency has warned Simmons University about its financial outlook as the Fenway school embarks on ambitious construction projects and prepares to change leaders.

Moody’s Investors Service revised its outlook for Simmons from stable to negative, a signal that the university’s bond rating could be downgraded if financial pressures worsen in the next year and half. A decline from its current Baa1 rating could raise borrowing costs for Simmons, which is fighting to attract students in an increasingly competitive market.

The negative outlook was triggered by Simmons’ plans to borrow $77 million to renovate its science center and library building, which will increase its current $140 million debt load by more than 50 percent. While Simmons has a healthy amount of cash and investments — $217 million — about a third of it is restricted and can’t be easily tapped, adding to the school’s financial concerns.

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“This is a pretty big project,” said Pranav Sharma, the Moody’s analyst who reviewed Simmons’ financial information. “The flexibility that Simmons had before this project is reduced.”

Moody’s also flagged other concerns for the 6,000-student university. The bet that Simmons made several years ago to increase enrollment and revenue by investing in online education is starting to soften, as other universities dive into the market, the rating agency said.

After the school rapidly expanded its online graduate programs in nursing and social work, overall enrollment at Simmons fell by 4 percent last year, mostly in online programs. The university did attract more first-year undergraduate students but also had to offer more discounts on tuition to enroll them, Moody’s noted.

“Failure to stabilize enrollment and grow net tuition revenue would challenge the university’s ability to afford its relatively high debt load,” Moody’s noted in its credit opinion.

It is not unusual for rating agencies to issue negative outlooks for universities before they launch large projects that require heavy borrowing, said Helen G. Drinan, who is ending her 12-year run as president of Simmons in June.

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The negative outlook is “negligible” to the university’s plans, Drinan said, adding that she is optimistic about the financial health of Simmons.

“I don’t see anything on our horizon that suggests things are going to turn down,” she said.

The $77 million bond sale will allow Simmons to move and upgrade its science center, a project that is expected to be complete in the fall of 2022, Drinan said.

Eventually, Simmons plans to raze the current science center and build dorms and classrooms there, as part of a move to consolidate the university’s Brookline Avenue operations onto its main campus, she said.

The construction of the residential tower will be a separate project planned for after 2022 that Simmons officials expect to be financed through a land swap with a private developer, Drinan said.

This long-term consolidation plan is an effort to ensure that Simmons remains competitive and in good financial health, she said.

But she acknowledges that the university does face headwinds in online education and in undergraduate enrollment. Many small, private colleges, especially in New England, have closed or merged in recent years as they face financial challenges and a declining number of college-age students.

Simmons is reviewing the pricing of its online programs and may lower prices to ensure they remain affordable for students.

“We will grow, obviously more slowly than we did in the last four years,” Drinan said of the school’s online programs. “The key for us, is to learn, to compete. ...This is not a gentleman’s game; it’s a true head-to-head competition.”

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The university also started recruiting international undergraduate students for the first time to offset any declines in US enrollment, Drinan said.

Drinan said she has spent the past few months trying to ensure that her successor, Lynn Perry Wooten, who is currently a dean at Cornell University, has a smooth financial transition.

“We’re taking an extremely cautious approach to budget,” Drinan said.

The higher education market is changing rapidly, and liberal arts schools that rely heavily on student tuition are in a tough spot, said Susan Fitzgerald, an associate managing director at Moody’s.

They need to have the most up-to-date facilities to draw students and beat their competitors but are also at risk of taking on too much debt, Fitzgerald said.

Institutions such as Simmons are deploying a variety of strategies to stay relevant.

“We’ll see how these strategies pan out," Fitzgerald said.


Deirdre Fernandes can be reached at deirdre.fernandes@globe.com. Follow her on Twitter @fernandesglobe.