The University of Hartford has hired an independent advisory firm to recommend ways to shore up its financial position, after failing to meet the debt service coverage ratio required for over $100 million in bonds used for campus improvements and other purposes.
The violation of the debt service ratio — a key measure of an organization’s ability to repay loans — came to light in January, after the school discovered an accounting error in financial disclosure forms it provided to investors ahead of a separate $25.5 million bond offering last summer.
Those funds — tapped through the Connecticut Health and Educational Facilities Authority, a quasi-public state agency that provides access to tax-free financing for nonprofit colleges, hospitals and other organizations — are being used for student housing renovations, the construction of a new health and wellness center and the pending build-out of a new track and field facility, records show.
UHart submitted corrections to its preliminary and official bond offering statements on Jan. 18, after discovering it initially underreported $10.8 million in expenses.
Such statements are published ahead of a bond issuance to help investors evaluate the structure and credit quality of a deal. They typically outline the purpose and terms of the bond offering and financial status of the issuer, among other things.
The school also had to restate and amend its 2022 annual report, which outlines several challenges, including a multiyear slide in enrollment and a five-year string of operating losses that peaked at $17.1 million in fiscal 2022.
More significantly, the updated calculations, which were based on audited financial statements, showed the school failing to meet its required debt coverage ratio — a measure that helps demonstrate how much operating profits, or cash flow, an organization has to cover annual debt payments.
UHart’s debt coverage ratio fell below the 1.1 level required under a $132-million bond deal issued in 2019. As a result, UHart had to retain an independent financial consultant — Longhouse Capital Advisors — to get back into compliance.
Longhouse is expected to issue recommendations soon.
As long as UHart follows those suggestions — “to the extent permitted by law, charter, by-laws or contract” — and maintains a debt coverage ratio of at least 1 moving forward, it will be deemed in compliance with its loan agreement, records show.
A future debt coverage ratio below 1 will be deemed a default, records show.
Navigating headwinds
UHart officials declined to be interviewed for this story, but issued a detailed statement saying they remain confident in the university’s overall fiscal health, budget planning processes and trajectory.
UHart said it’s current on all debt interest and principal payments, as well as all other financial obligations. The school said it also has a “strong” $175 million endowment and an untapped $15 million revolving credit line with JPMorgan Chase.
“The University will continue to manage our financial position and operations closely to ensure compliance with all financial ratios in the future,” UHart said.
The school also acknowledged it is navigating headwinds shared by many colleges, including pandemic recovery, increased competition and inflation.
“The University has two smaller classes due to the pandemic that will be here for the remainder of their four-year educational experience, which reduces tuition and room and board revenues,” UHart said. “Like many of our peers in the state and across the country, these factors contributed to an operating deficit for the fiscal year ending June 30, 2022.”
Meantime, UHart said the individual responsible for the accounting error “is no longer” employed by the university and its finance department has new leadership.
The miscalculation was the result of the school using its budgeted expenses, rather than year-to-date actual expenses that were available when the 2022 bond offering statements were published last summer, the university said.
About five weeks after notifying investors of the corrections, the school announced in February that President Gregory Woodward would be retiring in June, capping off six years as the institution’s leader.
UHart in March also named a high-profile new board chair: Stanley Black & Decker CEO and President Donald Allan Jr., who in May will replace David Gordon following his five-year term. Allan has been on the school’s board of regents since 2015.
Barney School of Business Dean Stephen Mulready will serve as interim president after Woodward’s departure. The school on March 21 said it was interviewing national presidential search firms ahead of its quest to find a new leader.
Campus, program upgrades
UHart’s efforts to confront challenges predate the COVID-19 pandemic.
On June 30, 2017, it wrapped up its fiscal year with an operating deficit for the first time in nearly two decades, according to its annual report.
One day later, Woodward was appointed president — replacing longtime leader Walter Harrison — with a mandate to grow enrollment through increased retention and new academic programs.
It has spent tens of millions of dollars — funded in part by bonded debt — since that time as part of those efforts.
The school opened its Center for Student Success in October 2019, with 20 staff offering counseling, tutoring, mental health and wellness checks and additional guidance to freshmen.
A 10,000-square-foot addition to the Barney School of Business debuted in September 2019, supporting a new business analytics major and expanded graduate business offerings.
About the same time, the university launched new majors in nursing, exercise science and occupational therapy. Overall, UHart in the last five years said it has added 16 new academic programs linked to in-demand careers.
In 2019, the university tapped $132 million through a CHEFA bond. It used the proceeds to refinance existing debt and fund construction of the 60,000-square-foot Francis X. and Nancy Hursey Center for Advanced Engineering and Health Professions.
The building debuted in 2021.
UHart turned to CHEFA for another $25.5 million bond issuance last year, which has been directed at additional facility improvements. The school said it has also raised $75 million through fundraising.
UHart launched a $20-million residential renovation last summer, including updates to its Village Apartments, home to more than one-third of students living in campus housing.
UHart’s 2022 annual report also outlined several cost-cutting measures, including the outsourcing of facilities and maintenance departments and the controversial move from Division I to Division III athletics.
The school said the move to Division III will “increase student athlete enrollment as well as decrease the discount rate for student athletes.”
The investment in a new track and field facility will help attract more Division III athletes, the annual report said.
UHart said it continues to review and adjust its business model, operations and educational offerings.
“Our board and leadership recognize the need to continue to make intentional investments in our students and in areas such as access and affordability, in-demand academic programs, residential life facilities and experiences, athletics, student support services, health and wellness, and career preparation,” the university said.
UHart’s undergraduate and graduate full- and part-time enrollment stood at 5,812 in 2018-2019. That number has declined every year since then, taking the largest dip during the early part of the pandemic. In 2022-23, UHart enrollment was 4,921 students.
However, the school said it sees positive trend lines ahead.
“Currently, we are encouraged and excited to once again see significant increases in applications, admitted students, and committed students for fall of 2023, after enrolling a strong class in fall of 2022,” it said.
The school added: “In today’s environment, and until our enrollment returns to pre-pandemic levels, we will continuously explore and evaluate resources across the University to remain strong and sustainable. The University is a secure enterprise with great momentum, and the essential pieces are in place to continue its success.”