Occidental College maintained its outstanding credit rating and refinanced its $34 million value bonds in 2015, resulting in an estimated savings of $3.6 million in net present value for the school, according to Vice President and Chief Financial Officer Amos Himmelstein.
Last year Moody’s Investor Service, a credit rating agency responsible for setting the market standard for bond evaluations, affirmed Occidental College’s outstanding rating, according to Himmelstein. Occidental received a rating of Aa3 — fourth highest on a 21-point scale. Further affirming the school’s financial stability, Forbes’ Top Colleges Financial Grade list gave Occidental an A, while the U.S. Department of Education gave the college a 3.0 — its highest possible Financial Responsibility Composite Score, according to an article written by Director of Communications and Community Relations Jim Tranquada.
These high marks are a reflection of Occidental’s reputation, endowment, ability to attract students and financial management, Himmelstein said. Bond holders want to know that if they are investing in a 30-year bond, it is a safe investment, and Moody’s rating reflects that it is.
According to Moody’s score reports, Occidental outranked California Lutheran University, Chapman University and the University of Redlands on the Moody’s credit rating scale. The California Institute of Technology and Claremont McKenna College both scored a rating of Aa2 — just a single tier higher than Occidental — while Pomona College received an Aaa, the maximum bond rating offered by the Moody scale.
“In order to move up a tier on the Moody’s scale, Occidental would need to effectively double or even triple its endowment, which is currently about $400 million,” Himmelstein said. “It is impressive that Occidental has a credit rating comparable to schools with a far larger endowment.”
Though the California Institute of Technology has a rating comparable to Occidental’s, according to Moody’s report it has an endowment upward of $2 billion, in contrast to Occidental’s $400 million.
Moody’s report also highlighted the most effective aspects of Occidental’s financial oversight, citing realistic budgeting and careful expense containment as the result of a favorable management culture.
Addressing the administration’s day-to-day goals for the financial management of the college, Himmelstein called attention to the school’s commitment to protecting its academic platform, which it does by cutting costs elsewhere. For example, Himmelstein said it was preferable to renegotiate contracts with longstanding food vendors than to cut research budgets.
“We are making a stronger connection between our budgeting process and the head of the academic division — the VP and dean of the college — to make sure that the decisions we are making aren’t affecting academics,” Himmelstein said.
Associate Vice President and Controller Barbara Valiente elaborated on further ways the administration has been striving to create a financially stable environment at Occidental, citing labor allocation as a major goal.
“Either we can reduce labor minimally or we can use it differently,” Valiente said. “We review each position before we fill it so as to ensure the position really is our highest priority, based on all the priorities of the institution.”
These financial practices are reflected in the school’s Aa3 rating, which played a major role in the college’s ability to successfully refinance its $34 million value bonds last year, Himmelstein said.
The decision to refund the school’s existing bonds in 2015 was made in order to save the college money, according to Valiente. In 2008, Occidental’s bonds had a fixed interest rate of 5.44 percent; in 2015, the rate dropped to 3.28 percent.
“That’s a savings of $3.6 million for the college,” Valiente said. “We took advantage of a favorable interest rate market and our hard work paid off.”
Though the administration worked hard to ensure the process went smoothly, Himmelstein attributed much of the achievement to good fortune: on the day they went to market, Occidental’s bonds were in high demand with pension funds and other large companies that require bonds as a component of their financial portfolios.
“They found us, with our Aa3 rating, and there weren’t a lot of other bonds we had to compete with that day,” Himmelstein said. “It was a victory for the college.”