June 22, 2016

Ratings agency warns Stockton over debt for AC development

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Stockton University

Stockton's Future Academic Quad Expansion

Stockton University will have a “weakened financial position” after issuing new debt to build a parking garage and residence hall in Atlantic City, and it may look to raise tuition fees, according to debt ratings agency Fitch Ratings.

Stockton, which gained university status last year, is borrowing $70 million to pay for the Atlantic City development and $211 million to refund outstanding debt and finance $25 million in projects at its main Galloway campus.

Since the University’s operating results were in the red last year in spite of healthy enrollment growth, Stockton needs to trim expenses and raise revenue – likely by making tuition “adjustments,” the ratings agency said in a statement on Wednesday.

Without those changes, Stockton would not be able to borrow for any further expansion projects without risking a ratings downgrade, which would increase the cost of its borrowing and further worsen its financial position.

“Stockton’s operating results have been negative since fiscal 2014,” said Fitch. The University’s accounts had a particularly rough year in 2015, after spending $18 million on the Showboat casino – at one point the planned location for an Atlantic City campus – and subsequent legal costs.

Still, not all is doom and gloom for Stockton, which also owns Seaview resort in Galloway. “Stockton’s sound regional market position and academic quality support healthy demand and stable enrollment trends,” Fitch analysts wrote in their report. “The solid demand profile provides some flexibility to generate additional revenues, which, together with good expense management, could contribute to operating balance and support Stockton’s increased debt load over time.”

The University’s new debt, which already has cost it a one-notch downgrade to ‘A’ status from ‘A+’, will help finance part of a 521-bed residence hall and a seven-story parking garage, according to Fitch. The remainder of the cash to support the so-called Gateway Development is coming from a mix of public and private entities. Energy company South Jersey Industries is also contributing financing to the project, which would see it move – controversially – its main office to Atlantic City from Folsom in the west of Atlantic County.

Stockton had enrollment of 8,674 in the fall of 2015, most of whom were undergraduate students from South Jersey.

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