Choate Achieves Full Recovery from Last Year’s $1 Million Loss
By Andrew Ricardo ‘10
News Staff Reporter
Despite last year’s financial turmoil that cost the school $1 million dollars, Choate’s financial office affirms that the school has recovered from last year’s loss.
To help finance various developments on campus, Choate issued bonds in June of 2007. In order to improve the appearance of the bonds in the market the school had to issue them under an insurance policy from a company with a credit rating higher than Choate’s rating. Unfortunately, following the collapse of the sub-prime mortgage market earlier this year, the insurance company’s credit rating dropped significantly, rendering Choate’s policy worthless and its bonds much less appealing to potential buyers. In addition, the rates that the school was paying on its bonds skyrocketed to twelve percent, the highest that it was legally allowed to pay under the involved documentation. In total, this economic chain reaction caused Choate Rosemary Hall approximately $1 million by the end of the fiscal year.
To rebound from the damage, Choate’s financial officials decided to refinance the bonds and move them into the variable market instead of the now-declining auction market that they had been in before. Mr. Richard Saltz, Choate’s Chief Financial Officer, explains that the variable market depends on “supply and demand…consumers aren’t bidding on the bonds [like in the auction market], but the bonds are reset based on what people think is happening in the market place in terms of economic conditions.”
In addition to this switch, the school has also changed its method of supporting the bonds from an insurance policy to a letter of credit, which gives Choate the credit rating of the bank from which the letter comes. According to Saltz, this gives potential buyers confidence because “without really knowing who Choate is…they have confidence that J.P. Morgan Chase has done their homework and that Choate is a good investment.” Saltz also says that Choate is very lucky that it was able to get refinanced by J.P. Morgan Chase as quickly as it did: “We reacted quickly, and we were able to get refinanced, but there are other schools and institutions… that didn’t react as quickly and couldn’t… the investment community just wouldn’t accept a refinance.”
In order to make up for the deficit caused by this turn of events, Mr. Saltz and Headmaster Edward Shanahan sent out messages asking people to, in Saltz’s words, “think twice about how and where they spend their money.” According to Saltz, the faculty reaction to this request was incredibly positive, and the school ended its financial year with an operating surplus of around $500, 000, despite the million dollar loss. “People cut back on discretionary spending,” says Saltz. “I don’t think that [the students] noticed any change…we did not want to impact student life or education. People responded very favorably: the library called me up and said that they would delay buying books until next year, department heads delayed buying supplies…so it was small things like that, but that’s what really helps.”
Another area of Choate’s financial life seems to be faring just as well: the money that the school gathers through fundraising. According to Mr. Daniel Courcey, “Fiscal year 2008…was one of the best cash years Choate has ever had. Our annual fund was over three hundred thousand dollars over goal.” Courcey also explains that the cost of fundraising in the past financial year was incredibly low, with just around ten cents being spent for every dollar raised. Still, the fluctuating stock market does have an effect on Choate fundraising.
“What I’ve told my team,” says Courcey, “is that… there are still a number of extraordinarily wealthy individuals who are affiliated with our school who are possibly not in good moods, and we have to be respectful of them. We have to be cognizant of the situation at hand and more astute than ever, so we remain hopeful, but pragmatic.” According to Courcey, the main focus of Choate’s fundraising strategy is to be “aggressive” while still being sensitive to the economic struggles that people are currently experiencing: “People’s nerves are frayed and skins are thin, and we have to know that, but it can’t paralyze us. Life is going on, and it will go on.”
While the American economy might be taking its toll both directly and indirectly on Choate, the school’s financial sector continues to deal rationally with problems that arise. Both Saltz and Courcey stated that Choate seems to be pulling through the economic strain quite well.
