Ashland University’s debt has eaten into its annual operating budget, with principal and interest payments coming due at various times. With variable rates, AU’s debt loomed within the budget, as any sudden financial shift could have substantial consequences.

“If interest rates double, that could wreak havoc with any business’s budget, college, university, regardless of what entity that is,” Stephen Storck, AU’s VP for business operations, said. “We want to avoid that. We want a fixed rate.”

To move towards that fixed rate, AU’s Board of Trustees has authorized the university to sell up to $40 million in tax-exempt bonds. This money will largely go towards paying back bank loans that have come due, but other funds will go towards renovations and deferred maintenance on campus.

“In the months ahead we will decide exactly how to spend that money,” Storck said.

Sold bonds will also increase the university’s working capital. Essentially cash on hand, this will go towards helping the university to make payroll and keep accounts payable, without having to borrow against the university’s line of credit.

The bonds will need to be repaid down the line, but they have a fixed line of credit, with two interest payments and a principal payment per year.

Last year, when Moody’s downgraded AU’s credit rating on bonds issued in 2010, the ratings agency cited AU’s low working capital and the reliance on bank loans in the report. That rating was affirmed in December of 2014. 

“That rating is largely influenced by the amount of debt that we have outstanding with the banks,” Storck said. “The fact that the repayment terms are pretty quick, the interest rates are variable…Moody’s finds that to be risky.”

Storck believes these bonds will set AU in the right direction financially. 

“They also feel that we don’t have enough working capital. That’s why we want to issue bonds sto provide working capital or 

cash,” Storck said. “By increasing our working capital, we will borrow less against that line of credit, so the fact that we are going to have more cash, a fixed rate of interest and lower annual repayment on interest and principle that should make Moody’s feel better for Ashland University.”

Previously, large amounts of cash were spent building many of the new buildings around campus, according to Storck. Using cash for this has led to a reliance on lines of credit, some of which were intended to be temporary. 

“The university used a lot of its cash to do that [building new buildings on campus] and that’s what caused us to borrow against this line of credit,” he said. “If the university had borrowed more money back in the day when the buildings were being built, we wouldn’t need to draw on the line of credit. I wasn’t here at the time so I’m not sure what all happened…but here we are.”

Enrollment has not matched the projections made when these projects began, which has also led to this reliance on bank loans.

“The cash coming in hasn’t been as strong as we had hoped,” Storck said, “or the people that made the decisions five years ago had hoped.”

Donations were sought to pay down this debt, but ultimately not enough cash came in through these channels to avoid issuing these bonds.

“If we had raised more money we could have paid down some of the bank loans with the money we raised,” Storck said.

In August, AU’s Interim president William Crothers said Fred Finks, in his role as chancellor, would be responsible for finding donors to help pay down the bank loan debt.

“[Finks] has a strategy, every day he wakes up thinking about that. He’s going after it, he’s out talking to key leadership people to address that. I think in time the debt will come down through gifts that he’s able to raise,” Crothers said in August.