The Metropolitan College of New York needs to save itself financially. But first it needs bondholders’ help.
The college, located in New York City’s Financial District with about 1,500 students, wants to pause debt payments for about five years as it works to sell two floors of the office building that houses its main campus, according to a regulatory filing this month. Such a sale would leave it with about one and a half floors.
The campus is close to the World Trade Center and is “underutilized” after enrollment dropped, the college told bondholders earlier this month. Metropolitan College tends to focus on older students and was hit hard by the pandemic, it said. It has less than half the number of students it had in 2014.
Across the US, institutions of higher learning have been cutting back or shutting down altogether after enrollment dropped over the last three years. More pressure is coming as a dropoff in births after the financial crisis is expected to translate to a decline in graduating high school seniors starting in the 2025-2026 academic year. A third of US universities face an “unsustainable financial future,” Bain & Co. consultants said in a 2022 report.
Metropolitan College says it faces extra pressure because more than 70% of its students are women balancing work and family, and more than 80% are economically disadvantaged. Its students were more likely to face challenges like job loss and the death of a loved one during the pandemic, the college said in its filing.
In 2014, Metropolitan College sold bonds to help build its Manhattan campus, which opened in 2016. About $62 million of debt is still outstanding, according to data compiled by Bloomberg.
It’s seeking bondholder permission to stop bond payments beginning in November and waive a $5 million liquidity requirement until 2028, among other requests.
In the meantime, the college will work to sell two floors of its campus. All the proceeds from a sale would go to pay the deferred debt service payments and redeem the bonds.
Tina Georgiou, a spokesperson for the college, Metropolitan College is also embarking on initiatives to boost growth, including new online offerings like undergraduate programs in nonprofit management and computer information systems.
“If successful, these growth initiatives are projected to have a positive short-term and long-term financial impact on MCNY,” Georgiou said in a statement. “However, they will require implementation time and investments in faculty, marketing, recruitment and development costs to produce positive financial results. MCNY is, therefore, engaging with bondholders to secure relief that will provide the time the College needs to realize this transformation.”
The college has been working with Huron Consulting Group on a turnaround plan.
Ratings Downgrade
On Aug. 15, Fitch Ratings downgraded the college deeper into junk, to CC, over the proposal. It’s considered a distressed debt exchange, since bondholders face a substantial reduction in the terms of the bonds, Fitch said. If the proposal is approved by investors, the credit rating would drop to C, the ratings company said.
The college noted that a sale may not be enough to cover the deferred debt service payments. The college offered an alternative to investors as well: It’s willing to put its entire campus in Manhattan up for sale and lease another location. Bondholders would receive all the proceeds from the sale.
Fitch said that offer was risky. “This alternative plan may avert default but remains a highly speculative maneuver with little room for error, as the college would need to market the property for sale, relocate to a new location, and apply proceeds to redeem the outstanding bonds before the November 2024 debt service payment date after exhausting the debt service reserve fund,” the ratings company said.
The school has already cut expenses for years and is seeking to restructure some academic programs to spur growth. It’s holding a call with bondholders this week to discuss the proposal.
