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Another Day Older and Deeper in Debt: College Sells $70 Million of Bonds

Incurring excessive debt is the last refuge of a scoundrel manager. It’s what you do when your operations are going through too much money, leaving nothing for new projects — and, in the context of higher ed, when your alumni don’t hold you in high enough esteem to make the donations for capital expenditures that your institution needs.

As we have discussed, at the end of the 1990’s, the College had the second lowest debt in the Ivy League (as measured against its endowment); ten years later, we had the second highest level in the Ivies. And the beating goes on. In January, with nary a press release for The D to re-print, the College sold another $70 million dollars of bonds. That will bring Dartmouth’s debt level to approximately one billion dollars — up from $288 million in 2001 (during a decade when the College supposedly took in $1.3 billion in a capital campaign).

Dartmouth Debt 2001-2012.jpg

To read Moody’s analysis, click here.

Dartmouth Debt Moody's 2012.jpg

To see the full offering prospectus, click here.

Dartmouth 2012 Debt.jpg

The deeper background is just as discouraging. In the 1990’s, Dartmouth had the fastest growing endowment in the Ivies; in the first decade of this century, the endowment had the slowest growth. A part of the reason for this poor performance is cash lost to repaying interest and amortization on bonds. (Also, there is nothing to the argument that the College borrowed money cheaply in order to invest wisely. The endowment’s relatively poor returns compared to our Ivy sisters give lie to that argument.)

Jim Kim’s purported $100 million of cost cuts just reek of financial manipulation and other accounting shenanigans. According to insiders, as many expenses as possible are now being charged to the endowment, contingencies have been squeezed (as the faculty understood in May), and the borrowing continues. That said, a good part of the truth will come out in October when the College’s accounts are published. But at that point, Jim Kim will be sitting in a World Bank private jet somewhere on the way to an elegant hotel. In Hanover, we’ll be looking at paying back one billion dollars of loans.

Addendum: According to the bond prospectus, the proceeds of the bond offering will go to funding the renovation of the Hanover Inn and to retiring old bonds. Along with other borrowing incurred in the current fiscal year, the College will be left with one billion dollars of debt — almost four times as much debt as in 2001, even though the endowment has only increased by about 35% in that period (nb: from 2001-2012 inflation was approximately 30%).

Addendum: Over at The D, Kevin Francfort sounds the alarm about the increase in the national debt in the United States:

Now is the time for citizens and politicians alike to join together in a call to deal with our debt problem. As important as social issues are in the lives of many citizens, these problems will be nullified if we find ourselves sucked in a financial hole. Real solutions, not rhetoric, are needed. It’s about time we get serious about our growing financial problems or risk feeling very uncomfortable when our economy follows the same trajectory as the Greek economy.

His message is applicable closer to home.


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