Sage
Sage
PUBLIC FINANCE
CREDIT OPINION
6 March 2018
The Sage Colleges, NY
Update following downgrade to Caa1
Summary
The Sage College's (Caa1 negative) weak credit quality incorporates its small scale of
operations in a very competitive market, unsustainable enrollment declines, modest wealth,
material operating deficits, and limited capital reinvestment in recent years. The college
Contacts
is highly dependent on a secured bank line of credit for working capital, with liquidity risk
Pranav Sharma +1.212.553.7164 and counterparty concentration in the debt portfolio. Bondholders have been effectively
AVP-Analyst
[email protected] subordinated to the bank providing working capital funds, reducing prospects for recovery in
event of default.
Susan I Fitzgerald +1.212.553.6832
Associate Managing Moody's downgraded the college's rating to Caa1 from B3 negative on March 5, 2018.
Director
[email protected]
Exhibit 1
Mary Kay Cooney +1.212.553.7815 Multi-year operating deficits, worsening in fiscal 2017 driving a greater reliance on working
AVP-Analyst capital line
[email protected]
Monthly liquidity excluding working capital line ($M) Operating deficit (%, right axis)
0 0
-4,000 -8
Japan 81-3-5408-4100
-5,000 -10
EMEA 44-20-7772-5454
-6,000 -12
2013 2014 2015 2016 2017
Credit strengths
» Total $50 million book value of fixed assets provides prospects for some recovery on $25
million of debt in the event of default
» Consistently good donor support reflected in the FY 2015-17 average annual gift revenue
of $4.8 million
Credit challenges
» Very poor strategic positioning, with small scale, volatile enrollment and lack of pricing
power in a highly competitive environment
» Senior leadership transitions, including a new president, CFO, and head of enrollment
management, adds uncertainty during time of operational challenges
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» Limited liquidity and a heavy reliance on an annually renewable $8.5 million line of credit to meet operating cash flow needs
» Debt structure introduces additional liquidity risk due to bank concentration and financial covenants
Rating outlook
The negative outlook reflects our expectations that the college’s operations will remain materially challenged for the foreseeable
future. A highly competitive market environment with limited resources constraining the college’s strategic position limits the college’s
ability to affect an enrollment turnaround.
» Sustained strengthening in student demand, resulting in revenue growth and improved operating performance
Key indicators
Exhibit 2
Profile
The Sage Colleges is a private institution comprising three colleges: Russell Sage College, a women's college in Troy, New York, Sage
College of Albany, a co-educational college in Albany, New York, and the Sage Graduate School, which operates both in Troy and in
Albany. The college enrolls around 2,100 FTE students and generates approximately $48 million in revenue.
This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on
www.moodys.com for the most updated credit rating action information and rating history.
2 6 March 2018 The Sage Colleges, NY: Update following downgrade to Caa1
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Sage College's student draw is local with over 90% of freshman students in fall 2016 coming from within the New York State. This
negatively exposes the college to the recently announced Excelsior Scholarship program, which may further shift demand to the
public university sector. The college faces considerable challenges at both graduate and undergraduate level to sustained enrollment
stabilization given a highly competitive market, including the lower cost State University of New York. With multiple campuses,
including the all woman's Russell Sage College (33% of enrollment of The Sage Colleges), Sage's operations are more complex and
costly to manage than similarly sized single site colleges.
The school is employing strategies to stabilize its enrollment, including reinstating early acceptance, increasing merit scholarships, and
sending admission packages two months earlier than the prior year.
Management reports it has developed an expense management plan, has reduced expenses beginning with fiscal 2018, and projects
improvement in fiscal 2018 performance over prior year.
Leverage: low and manageable debt levels with no additional borrowing plans
The debt burden remains low with 0.5 times debt-to-revenue and debt service representing about 3.3% of operating expenses in
fiscal 2017. Management reports no additional near-term borrowing plans however the management could potentially try to increase
borrowings on its line of credit if the financial performance for fiscal 2018 does not improve.
DEBT STRUCTURE
The college's debt structure carries both liquidity and counterparty concentration risk. The 1999A rated bonds are fixed rate, payable
through 2029. The Series 2002A Bonds are variable rate demand obligations supported by a letter of credit (LOC) with M&T Bank
(M&T), a subsidiary of Manufacturers and Traders Trust Company, and a stated expiration of June 30, 2018.
M&T Bank is also a provider for an annually renewable $8.5 million line of credit, of which $8.3 million was outstanding at June 30,
2017. The Series 2002A LOC as well the M&T Bank loan has a debt service coverage ratio covenant of 1.0 times (Sage calculations as of
June 30, 2017 of 0.68 times, excluding the operating line of credit) and the college had to request for a waiver. In the event in the event
of failed remarketing, the tendered amount would convert to a term loan with M&T. Sage would have until the expiration (June 2018)
to pay back M&T. Management reports there have never been remarketing disruptions of the Series 2002A bonds.
3 6 March 2018 The Sage Colleges, NY: Update following downgrade to Caa1
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The college also has a $3 million variable rate term loan maturing in 2021. This loan has a first lien on certain land, buildings and
equipment. There are no financial covenants pursuant to this lien, but a cross-default provision exists.
Sage entered into a contract with Renaissance Corporation of Albany Inc (Renaissance Corporation) in fiscal 2015 which is expected
to last until FY 2020 for student housing. The total future payments under this contract are approximately $7.2 million. The contract
ensures a specified number of beds available for use by the college, 286 in FY 2016 and 275 for FY 2017-2020. If the college does not
reserve the specified number of beds by May first immediately, Renaissance Corporation shall make its best efforts to have students
from other educational facilities (Albany College of Law or Albany College of Pharmacy) lease the available beds. However, the college
is ultimately responsible for the contracted amount and is billed on a monthly basis. In the event of termination, Sage is required to pay
any compensation accrued as of the date of the termination.
DEBT-RELATED DERIVATIVES
None
PENSIONS AND OPEB
The college does not participate in a defined benefit pension plan.
4 6 March 2018 The Sage Colleges, NY: Update following downgrade to Caa1
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5 6 March 2018 The Sage Colleges, NY: Update following downgrade to Caa1
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CLIENT SERVICES
Americas 1-212-553-1653
Asia Pacific 852-3551-3077
Japan 81-3-5408-4100
EMEA 44-20-7772-5454
6 6 March 2018 The Sage Colleges, NY: Update following downgrade to Caa1