Georgia Tech earns top credit rating despite headwinds facing higher ed sector
By David Pendered
Georgia Tech has received the top tier credit rating on an upcoming bond issue despite challenges facing the nation’s higher education sector as the pandemic remakes the college experience.
Tech’s planned sale of $14.2 million in bonds received the highest rating possible from Moody’s Investors Service in a rating action dated March 19.
Tech plans to use proceeds of the bond sale to pay off bonds issued at a higher interest payment in 2010 – annual payments are to peak at 5% in 2024 and 2025, according to terms of the original bond.
Tech used the proceeds to build and equip a dining facility and the Carbon Neutral Energy Solutions Lab. The money also paid for the renovation and equipping of the 14th Street Facilities that complement the CNES Lab, according to the original terms.
The CNES Lab is the type of research facility that Moody’s analysts identified as a credit-enhancing revenue stream for Georgia Tech. The lab is part of Tech’s Strategic Energy Institute that, on its homepage, cited research grants totaling $4.35 million in 2020 for work to capture carbon dioxide from the air and turn it into something else, such as a liquid fuel replacement for petroleum-based fuels.
Tech is securing the bonds with two income sources – a lease agreement with the Board of Regents of the University System of Georgia, and the general obligation of Georgia Tech Facilities, Inc. a non-profit that supports construction projects at Tech.
Analysts gave positive marks to an array of Tech’s operations, including significant gains in sponsored research activities:
- “Georgia Tech’s excellent brand and reputation as a globally prominent technological research university, demonstrated by impressive student demand and significant research activity, underpin its credit quality.”
Analysts didn’t overlook the federal coronavirus relief package that supports Tech’s bottom line:
- “Tuition revenue growth and federal relief in fiscal 2021 will mitigate the year over year impact of auxiliary revenue declines in the $48 million range as well state appropriation reduction in the $10 million range.”
The high credit rating belies the negative outlook Moody’s provided to the higher education sector in an outlook issued Dec. 8. 2020. That note began with this ominous headline and introduction:
- “2021 outlook negative as pandemic weakens key revenue streams
- “The outlook for the US higher education sector remains negative as the coronavirus pandemic threatens key revenue streams and uncertainty continues over the pace of economic recovery and the length of the public health crisis.”
Analysts didn’t see anything they liked about the higher ed sector when they assembled that outlook. College revenue streams were expected to be assaulted from all angles. A few that were cited in the outlook:
- “Sectorwide enrollment softness will lead to net tuition revenue declines at an estimated 60% of public universities and 75% of private universities
- “[O]perating performance will decline, with about 75% of public universities and 60% of private universities failing to generate cash flow margins above 10%.
- Universities will continue to use a variety of balance sheet tools to help mitigate mounting deficits and shore up liquidity.
- “The rapid move to a virtual classroom experience has accelerated advances in online delivery that might have taken much longer before the pandemic.”