In any market, in any industry, especially in times of uncertainty, there are outliers that buck trends and outperform expectations and the competition.
In the higher education sector – which has navigated the COVID-19 pandemic amid inefficient business models, changing demographics and other growing challenges – Babson College is one such outlier. overperforming.
One of the myriad ways to identify top performing companies and institutions is to assess an organization’s obligations. Babson recently received a pair of bond rating upgrades from Moody’s Investors Service and Standard & Poor’s Ratings Services. The respective A1 and A+ ratings reflect the highest bond ratings in the College’s history.
“These upgrades reinforce our strategy, recognize the hard work of our faculty and staff,” said President Stephen Spinelli Jr. MBA’92, PhD, “and validate the College’s sophisticated financial management across the one of the most intense and difficult periods in the history of higher education”.
Babson finance professor Richard Bliss compares bond ratings to individual credit ratings with one key distinction. While a credit score only reflects an individual’s past actions to determine their likelihood of repaying their debt, an organization’s bond ratings are more involved. A business or institution provides a detailed forecast of its finances and operations, backed by data, to project its future spending and plans. Rating agencies evaluate this forecast to determine its rating.
Forward-looking nature is key, says Katherine Craven P’22, chief financial and administrative officer at Babson. “A rating upgrade is really an acknowledgment of discipline and the expectation of continued spending discipline,” she said. “You are outclassed because you maintained discipline, showed the ability to make sacrifices when sacrifices were needed and the ability to make tough decisions.”
In practical terms, higher bond ratings mean lower interest rates and ultimately lower financing costs to borrow money.
For Babson, there was another immediate financial benefit. Rating upgrades and lower interest rates enabled the College to pay off outstanding bond debt (similar to refinancing a mortgage). Craven says the refund saved Babson about $400,000 a year.
Since the grades reflect the College’s strong financial discipline, Craven and Bliss caution that the upgrade is a positive signal to continue on its path rather than an opportunity to change course and increase spending.
Beyond interest rates and financial benefits, however, there is also a larger beneficial halo effect for bond rating upgrades, especially for a higher education institution.
“Reputational risk or the positive impact of your rating extends far beyond an isolated transaction or even how Wall Street views us,” Craven said. “All of our accreditors are watching this, so it becomes tangible for the academic side as well. It is a validation of the academic model.
“All of our accreditors are watching this, so it becomes tangible for the academic side as well. It is a validation of the academic model.
Katherine Craven P’22, administrative and financial director
This is where Babson truly differentiates itself in a destabilized market during the pandemic. The industry as a whole is seen as a “negative watch,” Craven said, which makes Babson’s upgrade all the more dramatic and impressive.
“At Babson, we have a strong demand for a very high quality undergraduate program, and our graduate school is increasing enrollment,” she said. “Parents are smart, and they send their kids to Babson and pay the tuition, because they get something for their kid in return.”
“Moment of Pride”
The recent upgrade reflects the College’s financial management that dates back to before the pandemic. However, Babson’s navigation through the disruption and uncertainty of the pandemic has also been a key factor in his recent upgrade, said Bliss, who serves as liaison between the Faculty Senate and the Finance Committee of the Board of Directors.
“What the pandemic has done for many higher education institutions highlights a business model that is unsustainable,” Bliss said. “I think what it has done for us has been to show our conservative leadership and fiscal responsibility, but also an extremely resilient business model, and in some ways the downward slope of the pandemic is as steep as when we entered , which is very rare in this sector at the moment.
Craven last earned a double upgrade in 2017. Given the state of the higher education industry and the daunting challenges of the pandemic, the College’s recent positive news strikes a chord.
“I feel immense gratitude that Babson is a supportive place,” Craven said. “It’s not just about finances. This is how all the elements of what we do as a community hold together under the microscope of an objective third party.
Spinelli agreed: “This is a proud moment for the Babson community.”
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