Financial crisis forced university to take more loans
Brandeis University was forced to take out more loans in fiscal year 2009 than in previous years in order to compensate for the effect of the national economic crisis, according to the university’s tax exemption forms from that year.
For example, on June 23, the university took a $50 million loan from Bank of America in order to meet a debt-ratio requirement. Debt-ratio requirements are used to insure that a given organization has a net operating income that is sufficiently higher than its annual loan payments. The university repaid the loan in July 2009 to the bank where Brandeis maintains a line of credit to help with the university’s “overall cash management,” Senior Vice President for Finance and Chief Financial Officer Frances Drolette wrote in an e-mail to The Hoot.
Drolette explained that though “Brandeis’ borrowing is part of the routine financial management of the university … It’s fair to say we borrowed more as the effects on the financial crisis lingered.”
There are many factors for why the university would decide to borrow, chief among them being “the need to support capital projects.”
For example, the university issued three bond series issued by the Massachusetts Development Finance Agency to help fund the construction of the new Shapiro Science Center and the Ridgewood Residence Halls.
The bonds issued gained the university a total of $109.5 million.
“The university generally issues tax exempt bonds to finance the portion of major capital projects that is not funded by donor gift,” Drolette said.
On June 30, 2009, the university’s total long-term debt was $252.95 million, signifying a $42 million increase in indebtedness during that year.
The university was scheduled to pay roughly $7 million of that debt June 30, 2010 and similarly will pay $7.4 million at the end of the current fiscal year on June 30, 2011.
The university also is a part of interest rate swap transactions with Deutsche Bank, where one party exchanges a stream of interest payments for another party’s stream of cash flows. The university’s swap, which like all swaps is a derivative, “is designed to manage the university’s interest costs and risks associated with variable rate debt,” according to Brandeis’ financial statements from the 2009 fiscal year.
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