Colleges and universities need to have active and engaged finance committees that are able to navigate them through these turbulent fiscal times. One prime example of the risks faced by many institutions that have issued Variable Rate Demand Obligations (VRDOs) is the potential impact of the recent downgrades of credit ratings on many major banks.
Many college and universities today have tax-exempt bonds in the form of VRDOs. Finance committees that monitor the fiscal stability of these institutions need to remain actively involved in monitoring the status of these VRDOs. If bondholders redeem the bonds, schools may ultimately be called upon to pay them off early, which could have an adverse effect on the institution’s financial well being.
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