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Anderson University Faces Financial Challenges as Fitch Lowers Rating Outlook to Negative

Anderson University, a nonprofit institution based in Indiana, has encountered financial challenges as Fitch Ratings has revised its outlook from “stable” to “negative.” This adjustment is due to the university’s reliance on asset sales and substantial withdrawals from its endowment to manage budget deficits in both the current and previous fiscal years, as well as anticipated shortfalls for fiscal year 2025.

Financial Performance and Debt Coverage

In fiscal year 2024, Anderson University did not satisfy the debt coverage ratio established in its bond agreements, leading to potential covenant default risks in 2025. Fitch analysts have indicated that this financial shortcoming could trigger accelerated repayment terms if the university is unable to negotiate terms with its bondholders.

Enrollment Decline

Similar to other smaller institutions, Anderson University has faced declining enrollment figures, which have exacerbated its financial difficulties. Enrollment has decreased by 31.3% from 2017 to 2022, with current enrollment levels reflecting only about half of the total student population from 2010. This decline contributed to a reduction of $2.8 million in tuition and fee revenue year-over-year, resulting in an operating loss of nearly $6.4 million for the fiscal year ending May 2023.

Asset Liquidation

To address these financial losses, the university has been liquidating assets, including a wellness center and its main facility tied to the enterprise center. The total assets of Anderson University decreased from $186 million to $123.6 million between fiscal years 2021 and 2023, with property holdings dropping by 29%.

Enrollment Outlook and Community Engagement

Despite these challenges, Fitch Ratings noted a slight increase in first-year enrollments for the fall semesters of 2023 and 2024. The agency described the university’s student demographic as small and regionally focused, while also acknowledging stable revenue sources from students, effective fundraising, and strong community engagement as positive aspects.

Debt Obligations and Compliance

The financial structure of Anderson University includes over $40 million in debt, with bond covenants requiring operating income to be at least 1.1 times greater than its debt obligations. The university did not meet this criterion in fiscal 2024, necessitating the engagement of consultancy services to improve compliance.

Future Risks and Infrastructure Challenges

Fitch’s negative outlook suggests the possibility of future credit downgrades. The current overall rating stands at B-, indicating some risk of default but with certain safety margins. Additionally, aging infrastructure presents further financial challenges, as many university facilities are over 25 years old. Feedback from a student study indicated that deferred maintenance could adversely impact the university’s competitive standing and financial health in the years ahead.

Source: Higher Ed Dive

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