The Death Bell Is Tolling For Small Private Colleges

States are really facing a tough time. Dwindling enrollment is really putting a pressure on the finances, and now it's actually spilling over into the credit markets. To get the latest, we welcome Amanda Albright, municipal bond reporter for Bloomberg News. She joins us here on a Bloomberg Interactive broker studio. So, Amanda, really interesting story on the Bloomberg terminal today. Give us a sense of what is happening with some of these

smaller private colleges and how it's impacting the credit markets. Yeah, so in the muni market. Um, the troubles of small private colleges have kind of been talked about for years, UM, but lately we're really seeing that kind of come to a head. Um, there is a bankruptcy by the College of New Rochelle Um that a lot of people were

watching just to kind of see how the recoveries would fare. Um. You know, it's still kind of not for for certain yet, but it doesn't look too good for bond holders, even though the college was sitting on some really valuable real estate. Aman, can you just set this scene for us why private colleges are struggling so much right now? Sure, so there's a lot of different factors going on, but I think

enrollment and demographics are what people point to. So basically, the number of high school graduates is kind of in this flatlining mode UM, and there are forecasts that you know, after that, UM, it will actually start declining. So in regions in the Northeast and the Midwest where there are a lot of um, small liberal arts liberal arts schools, um that bills have to start competing for students, and that could actually cause more enrollment. This isn't just a

this is not just a demographics issue. This is also a people realizing that paying you know, two hundred thousand dollars for four years in college doesn't always pay off and ends up leedingly like leaving you with a ton of debt. I mean, isn't that a big part of it too? And people just choosing not to do it? Absolutely. I think a lot of students. You know, there's a lot of headlines about the student loan debt crisis that we're in UM, and you know, people are kind of

rethinking the value of a small private school UM. And you know, the other part of it is that, you know, these small colleges, in order to kind of have the really nice liberal arts environment, you have to spend a lot to give that, you know, small classroom sizes, stuff like that. So expenses are really becoming a problem for these institutions too. So how typical is it for a U S college or university to actually tap the bond market?

Is that part of most you know, colleges, university's capital structure, balance sheet. It's incredibly common. And I think that's what's so interesting about this is, you know, a decade ago, maybe it would be unthinkable that we would be in the situation that we're in because you know, the number of high school graduates was increasing so much. UM, so private colleges, you know, took on debt for dorms, athletic buildings, classrooms, um.

And now you know they're kind of dealing with these emptier dorm rooms, emptier classrooms and so um, it's kind of coming back to bite them. How much is this because of immigration or how much US colleges are attracting foreign students. That's definitely part of it. And I think that's something that's affecting even public institutions, even really elite colleges. That's something that is really really interesting to keep an eye on, you know, the next few years because you know,

ratings companies. Have you even been talking about, you know, the the immigration issue and just kind of how international students are being deterred. What's the So the New Rochelle they filed for bankruptcy. Okay, so do we have any senses or any history as to the kind of recovery rates that you typically get in these types of bankruptcies. Yeah, So the College of New Rochelle bonds, Um, they're trading

around forty cents on the dollar. Um. There was a bankruptcy by Dowling College in Long Island, UM, and bond holders recovered an average of about seventeen percent. So that kind of gives you an idea UM. You know, these situations there's not a ton of debt at play. But you know, when you have a seventeen hundred private colleges in the US, and you know a lot of them took on bonds, that's something that I think is very concerning to bond holders. Are there any estimates how many

of these colleges will have to merge or close entirely? Uh, just sort of make this make sense in terms of how many colleges there are. It's it's been interesting because there's been forecasts all over the place about closures and mergers UM. And what's interesting is that in both cases there are impediments to both. So for closures, alums will often step in and do fundraising so that can that

has prevented some closures from actually happening. And that's why closures are still so rare, is that, you know, it's really painful for colleges to close. And when it comes to mergers UM, you know, it's kind of like a company merger, only there's even more emotions at play because you know, you have alums who are worried about, you know, losing the identity of their school. UM. You also have

the financials of colleges. You know, can to colleges make it work if both of them are dealing with the same, you know, poor financial outlook. So that's kind of why both are very rare. But everyone is kind of saying, you know that they expected to continue and increase. Amanda al right, thank you so much, really interesting story. Amanda

al Right. Munismal bona reporter for Bloomberg News. It is a historic day in Washington, d C. Is the House debates uh the Trump impeachment guidelines currently and is poised for a vote on the impeachment proceedings. A lot of people are perhaps shrugging this off as feeling sort of inevitable,

but here with us, I'm so pleased to say. Who has the historical reference of twenty years in public service, including working in all three branches of the federal government is Chris Lew, Senior fellow at the University of Virginia Miller Center, which studies the presidency. He's also a former senior White House aid to President Obama. Chris, so good

to have you. Can you paint today in a historic sort of picture to understand the importance even if people sort of shrug it off, as somewhat inevitable it will be passed by the House and shot down by the Senate. Yeah. No, I mean it's exactly right. Whether you think this is a good idea or not a good idea, it's a historic moment. Uh. The President Trump is set to be only the third president ever impeached. There was a fourth, Richard Nixon, who didn't quite even make it to this

point before he resigned. And so, you know what what is being discussed today, and inevitably, how the Senate trial goes, we'll we'll be setting guardrails for future presidencies and good or a bad way. And so look, um, you know, politics, Um is what this is all about. I mean, I don't mean that in a bad way, but we always think about this in political terms. But this is a really historical thing that will be studied for many years after this. So Chris, let's fast forward a little bit.

Let's I'm kind of making the assumption that the House will vote to impeach today. We get to the Senate and it appears like the Republicans are the leaded leadership. Mitch McConnell, Lindsay Graham and so on are coordinating with the White House and and maybe not going to call any witnesses. How right common or unusual is that? Well, look,

I don't think the coordination is uncommon. I think the you know, openly bragging about the coordination, which is what the Mitch McConnell is saying, as well as Lindsey Graham saying, look, I'm not even gonna try to be fair. Um. You know a lot of people have analogized the senators to jurors. They're kind of like jurors, but they're kind of like

judges as well. And I think what you've seen in previous impeachments um is at least senators kind of at least saying, uh, you know, we're going to try to objectively look at the facts. And I think what's less clear here is how that senator trial is going to go down, because ultimately it's it's up to a majority of senators as to whether they want to call additional witnesses or simply rest on the record that was developed

in the House. So, given what you were talking about, that this impeachment proceeding will set guardrails in a way and guidelines for future presidencies, what are you watching in terms of the developments today and future ones that are expected in the Senate that will give us a sense of how this is going. Well. You know, it is interesting. The most recent example we have is obviously the Clinton impeachment, which dealt with both perjury and obstruction of justice, and

so a majority of the House impeach President Clinton on that. Again, it was largely a partisan vote. So if that's sort of the floor of what qualifies as an impeachable offense. Uh, And then you go back to the Watergate impeachment, where again it was abuse of abuse of process, abuse of power, I'm sorry, obstruction of justice, obstruction of Congress. That was sort of at a different level. You know, you probably put the Trump impeachment probably closer to Watergate than to Clinton.

But the fact that, um, you know, many of the same people who voted for the Clinton impeachment will now vote against the Trump impeachment does leave you sort of scratching your head as to how you can rationalize these things intellectually. So, Chris, there's been some reporting that, you know, behind closed doors, many Republicans say, you know, we're not really supportive at President Trump, his administration, many of his policies but you know, we're you know, we've got to

support him here. Are you surprised that we haven't had any Republicans? Are any meaningful number of Republicans come out against Trump? And will we see it in maybe today's vote or in the Senate? Well, it is sort of interesting. I mean, I think we will expect to see, uh today, essentially three members of Congress break from their parties. UM. Justin Amash, formerly a Republican, has already switched to an independent. Jeff Andrew, a Democrat, will vote against impeachment and then

leave his party. So essentially of the three people who will vote against impeachment to have had to leave their party. Uh. Contrast that with Clinton, there was probably you know, a half dozen to a dozen members on either side who sort of flipped votes. And I think in large measure reflects the partisanship um that we have in this country

right now. Um. You know, people famously remember the Watergate moment when UM, both House and Senate Republican leaders went to Richard Nixon and said, look, we we don't um, we can't condone your behavior. We don't have the support if you don't resign, we're going to impeach you you know, that was forty five years ago. You can't really imagine that kind of a conduct or by by Republican leaders

in this current climate. I'm trying to understand that. You know, it's really important that you mentioned that this is a really partisan issue and as part of the reason why, Uh, sort of there's this image being painted that there's an apathy about the proceedings is just sort of political theater. But can you sort of paint this also in terms of how unusual it is or is this common? I mean, was the Nixon impeachment also viewed as very much of just a partisan issue? Yeah, And you know, there's a

couple of ways to look at it. What is based on public opinion polls, you know right now, you know, it's depending on which poll you look at. About forty six to fifty percent of the American public believes that President Trump should be impeached. That's significantly higher than any that than what was the case in Clinton, where um support frompeachment early across and really in the Nixon impeachment it only crossed that mark at the very end, about

the month before he finally resigned. Uh, The support for impeachment cross, so you know, and and I think in some measure reflects that these charges against President Trump are easy to understand and people can sort of make their assessment one way or another whether it's improper. But I think it also reflects the partisan nature of our country right now. We are a fifty fifty country. And what's

unfortunate here is that this is a historic moment. This is one of the most solemn responsibilities that a member of Congress can undergo, and for many of these members of Congress, this will be the most consequential vote that they will take in Congress. And yet everything is sort of being seen through a partisan political lens instead of an impartial examination of the facts and law, which is I don't expect to see much of that on the House floor today. I'm hoping when we get to the

Senate we're able to do a little bit of that. Hey, Chris, thanks so much for joining us. We really appreciate your insight here into what is again as you suggest it and characterizes a historic day. Chris lewis a senior fellow at the University of Virginia Miller Center, which studies the presidency. He's also a former senior White House aide to President

of AMAS. So interesting getting Chris is well informed comments about the process, about the likelihood of how this will proceed as we make the vote today through UH the House and then we get to the Senate. So we will have all of that for you. Coming up. FedEx shares not having a particularly boring day, but not having a good day by any means. Shares down more than ten percent after giving guidance that was absolutely slaughtered by

Wall Street analysts. Joining us out to talk about what actually went wrong here, as Satisha Jindal, he's president of s J Consulting. Satisha, I just want to start with at the sort of elephant in the room. How much does this stem from Amazon dot Com telling some of its third party businesses and clients that they cannot ship with that ax practically none? Okay, great, I'm glad that we've established that. So what was the main driver here?

The main drivers that are two structural issues taking place and in both the express business domestically in the US and in the ground business, which are the two major drivers of revenue and profitability for the company. And in the express business, the market has been declining practically it's flat over last fourteen years because not too many people are shipping packages across the country. They don't need express,

so they've got, in my view, too many aircraft. They could bring more of them down and as a reference to UPS, handles as many parcels in express network as fed X while doing it with fewer aircraft because they have integrated network. And during the same last fifteen years, why express volume has been practically flat one percent increased, grounds increased, and yet fed X is not adjusted structurally to handling it in that manner? What what? Why are

they not you know, making that change. When I think of, you know, moving packages around, I think of fed X. I mean they kind of created this whole industry, this whole business. What are they missing here? Why? You're correct, they created the express industry, and absolutely fred Smith is a legend and art industry, but that was for the express service that started for two years ago. The parcel and the industry for express documents also is absolutely degrees

turned around over these years. Now everything is moving a short distance and in ground and then it is not business to business. The business to consumer is growing at two or three times the rate of business to business and they failed to recognize the changes driven by e commerce that was resulting lower yal due to lighter weight and short of zones, and they don't comment about being attention to it until March of this is you make a really important point, which is perhaps they should be

reducing assets and reducing investment rather than increasing it. Am I reading that correctly? Because it comes at a time of them increasing investment across the whole host of different areas. You are absolutely spot on. You should be a financial analyst because they talk about I mean, they talk about having a capex of five pot nine billion dollars in this fiscal leer, next fiscal leer and the one after that, and they're buying a lot of aircraft. They should be

rinking their capacs. They should not be buying new aircraft. Existing aircraft don't have to be retired because they don't need so many aircraft, and they could retire them and put it on the ground and do it at the lower cost and invest in the ground network. And here's another thing that has been overlooked. The ground business quartered over quarter compared to last year, increased revenue by hundred

and seventy three million, but the purchase. Transportation cost went up by two salary and wages went up by eighty, so they went up by three millions in costs to get extra hundred and seventy million revenue. That that is a structural issue that will get corrected, but it won't happen in one quarter. It will be at least three quarters to a year before they get that. But they needed to do it real quickly. Was that a good move to kind of severe business with Amazon? It just

seems odd to me. My view is that it's they should have been able to make money handling the business, and if they chose not to, it should have never become an element to be shared in the public, should have never gotten any ink in the media, and now they did that. So Amazon did what they did last couple of days, and it will be back and forth and that isn't healthy for either party. Satista Jindel, thank

you so much for joining us. Satista Ganel, as the president of s J Consulting, joining us here to talk about fed X again. The stock down about ten on weaker than expected guidance going forward, setting weaker global trade and also probably some of the issues with Amazon dot Com walking away from that business. All right, let's take stock of nineteen s and p up about seven investment grade bonds up about fourteen percent. Even municipal bonds had

a stellar year, up over seven percent. Let's talk about the municipal bond market. We welcome Jeff Berger, senior portfolio manager for US municipal bond Strategies at Melon Investments based on Boston, but joining us here in our Bloomberg Bloomberg Interactive Broker studio. So, Jeff, give us a sense about the muni performance in nineteen What drove it? Thanks for having me. The performance in municipals really across the curve was stellar in two thousand nineteen, and precisely to answer

your question what drove it? If you look at technical fundamental evaluation factors in our market, the one that really stands out our technical factors technical factors meaning really supply and demand in our market. And the demand really was unprecedented in two thousand nineteen, particularly from US retail investors.

In fact, the highest on records since really records of municipal mutual fund inflows began in In no year have we seen more interest in the SASSA class than we saw in two thousand nineteen, so technical factors drove the gains. I'm wondering about the potential risks because I tend to be a kill joy, but also because we were just talking to Amanda all Right from Bloomberg News about the fact that private colleges are are going to be devaulting

on their debt. Do you view this market as riskier or do you view it as a place to just keep on plowing in because the technicals are going to continue being good. Yes. Now that's that's a really on point question, the sense that anytime you see a market with the type of stellar demand that you've seen in two thousand nineteen, I think as prudent investment managers like we are at Melon, looking at what's driven this, you always have to ask the question what could go wrong?

What could change? And and it's really a probabilistic type analysis. And so if you look at the of what could change and what's the probability of that changing, I would say the probably ability of it is low, and what that change could be would be a reversal of of all these flows. It's really, in my opinion and our the team's opinion, not not so much a credit issue per se, it's whether the retail demand for this asset class were to change for for any number of reasons.

We don't think those reasons are in place right now. Um again, really looking at what's driven that retail inflow in our market, it has a lot to do with the Tax Cutting Job Act. It has to do with the fact that state and local taxes being kept at ten thousand dollars as the maximum you could deduct from your federal tax liability. About it has driven a lot of people in and so it's our opinion that that that demand and the reason for that demand is not

likely to abate anytime soon. So an election year, how do you be there's gonna be a lot of talk about tax policy and lots of other things. How do you mean this will is typically perform in a in an election year. Sure, So, when we think about elections in the impact on the municipal bond market, there are

a number of factors that we consider. The first is, well, typically uh, come come elections season, A number of ballots on on the referendum or initiative process to say do we want to issue more debt as a local community. So we're gonna be paying attention to how much debt is on the ballot and how much of it gets approved this November. By and large, though, this market is well capable of absorbing more supplies, so that in terms

of hierarchies not the number one concern. What we also are paying attention to are the implications from tax policy, whether it's the re election of the president or a Democrat coming into power. Under both scenarios where of the mindset currently that the tax policy You've seen Donald Trump's tax policy with a salt cap, and most of the Democrats are proposing some uh tax policy change, meaning tax increase. Both of those generally are good for for the market.

And the final piece we're paying attention to is whether there's an increased probability of a federal infrastructure bill um post election. There's arguments that you really, you really think there's any chance of that post election, we're talking talking next year, We're gonna be doing infrastructure next year. Well, we certainly desperately need it, so it's maybe it's aspirational in the sense that as infrastructure bell Yes, is that the gateway tunnel right across the literally And is it

like you love your pet project. I just blew through LaGuardia this morning, and that's great. What's going on there? I mean, is it? Though? With the cabs it's ridiculous. So I took Uber so I did not have to deal. I'm learning so we evolve as as consumers, and I've learned that the taxi line can be a little long. All right. One question, I just quickly to wrap it up here. What about foreign investment. We've seen an increase there.

What are you expecting on that front? Absolutely? I think foreign investors is probably one of the most underreported stories in our market in the sense that what you're seeing across the globe is a demand for this asset class driven by just low sovereign yields across the world, with a third of the world at sub zero rates, You're

seeing new buyers into this asset class. And what gets us most excited is global investors really for the first time are recognizing the under appreciation, the under value of this market. That the opportunities and municipals are being recognized across the globe, and you're seeing that now a tremendous flow from both Europe and Asia. All Right, and before we let you go, Jeff, what project? What's your number one infrastructure pet project that you would push for? What

I would push for? Oh gosh, So I'm a Boston person, so I'm gonna root you already had the big dig. Yeah, but you know, I'm also green, and so I think let's let's move away from the big dig and let's really work on public transportation. I think our T M B T A in Boston can could be improved. Jeff Burger, who is green? Jeff Burger, Senior Profolio Manager for US Municipal Bond Strategies at Melon Investments, based in Boston. Thank you so much for being here. Thanks for listening to

the Bloomberg P and L podcast. You can subscribe and listen to interviews at Apple Podcasts or whatever podcast platform you prefer. Paul Sweeney, I'm on Twitter at pt Sweeney. I'm Lisa Abram Wohits. I'm on Twitter at Lisa Abram Whits One. Before the podcast, you can always catch us worldwide. I'm Bloomberg Radio