Rider University Chapter of the AAUP
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    • Important Information on Campus Consolidation
    • Chinese Company Out As Buyer Of Westminster Choir College
    • Kaiwen is Gone
    • Kaiwen Education Reply to a June 2019 Inquiry from the Shenzhen Stock Exchange
    • Update on Kaiwen Education's Financial Status
    • Arbitration Over Layoffs at WCC
    • Kaiwen Education 2018 Annual Report
    • By Federal Reserve Standards Kaiwen Education is a Highly Leveraged and Risky Business
    • Two Updates on Kaiwen's Finances
    • Due Diligence and Kaiwen Education
    • Chronology of a Crisis
    • WCC Reset
    • New Jersey Attorney General’s Office Delivers Major Setback to Rider University’s Plan to Sell Westminster Choir College
    • Westminster Foundation Press Release on AG Investigation
    • Purchase Agreement
    • Faculty Shocked to Learn Secret Agreement Would Allow Buyer to Close Westminster Choir College
    • Universities as the Guardians of Assets
    • Press Release Kaiwen Finances
    • 2019 Report on Kaiwen
    • DejaVuDellOmo
    • Kaiwen Announcement 1/11/19
    • AAUP Goes to the NJ Assembly
    • Sign the Petition to Save WCC
    • WWCAC Letter November 8 2018
    • Kaiwen Education: Report on Company Performance Through the Third Quarter 2018
    • New Information Reveals Chinese Corporation Plans to Take $20 Million Westminster Choir College Endowment despite Prohibitions Imposed by State/Federal Law
    • More Bad News about Kaiwen
    • Claims v. Reality
    • AAUP Challenges Legitimacy of Newly announced Non-Profit Said To Be Created To Run Westminster Choir College
    • Label Your Stuff!
    • WCC Alumni Council Questions and Answers
    • Statement on Proposed Sale of Westminster Choir College Faculty Union Vows to Continue Oppose ill-conceived Sale of Iconic Music School
    • June 7 Letter to Board
    • A Failure of Due Diligence
    • Bond 2017
    • Chronology of the WCC Crisis
    • Kaiwen Education Technology
    • Pending Legal Actions >
      • Legal Complaints against Rider University over Sale of WCC
    • The Legacy of Westminster Choir College
    • Updates and Information Sent to Faculty from AAUP Leadership >
      • A Letter to WCC Faculty regarding President Dell'Omo's Letter
      • Open Letter to Board of Trustees
      • Letter to Faculty
      • How a For-profit Company Might Ruin Westminster
      • A Message from AAUP regarding the potential layoff of Westminster Faculty
      • ​Update on Westminster
    • Press Releases >
      • Outrage Over Rider University's Plan To Sell Legendary Choir College To Chinese For-Profit Company With No Experience in Higher Education
      • DellOmo Lays Off Entire WCC Faculty
    • WCC Crisis in the News >
      • The Coalition to Save Westminster Choir College Initiates Spin-Off Discussions With Rider University Administration
    • Letters of Support for WCC >
      • Eric Whitacre Praises Westminster
      • Statement of support from NJ Higher Ed Leadership Council.
      • Support for Westminster Choir College
    • Teach In at WCC
    • WCC Teach In Audio >
      • Remarks by Laura Brooks Rice
      • Have American Universities Lost Their Way? by Joel Phillips
    • Governance Standards in Institutional Mergers and Acquisitions
  • 2022 Negotiations
    • Negotiation Updates
    • STRIKE FAQ
    • AAUP's Response to Admin's "Critical Need for Change"
    • AAUP v. Admin Proposals
    • CREDO >
      • Admin's Prioritization Report
      • WCC Students Petition DellOmo
      • Dr. Sanjay G. Reddy Speaks to the Chapter
      • A Bargaining Unit Member's Guide to Credo Part 1
      • A Bargaining Unit Member's Guide to Credo Part 2
      • Rider AAUP Executive Committee Recommendations Concerning Credo Consulting
      • Administration Attempts to Bully AAUP Executive Committee
      • Save Rider Rally
By Federal Reserve Standards Kaiwen Education
 is a Highly Leveraged and Risky Business

​Companies like Kaiwen Education, the for-profit selected by Rider University as the future owner of Westminster Choir College, are in the news, not in a good way. On Sunday, May 12 Joseph DiStefano used his column in the business section of The Philadelphia Inquirer to express concern about an initial public offering of stock (IPO) by a pharmaceutical company.

In its prospectus the company warns investors that its accumulated debt is so big that, in DiStefano’s words, “it will have a tough time paying its bills when the economy eventually slows, if it doesn’t quickly turn profitable”.
The company has all the hallmarks of Kaiwen Education, which continues to rely on debt to fund its operations, continues to incur large losses, and warns investors that economic downturns pose a major risk to its business.

DiStefano’s column comes a few days after the May 6 report by the U.S. Federal Reserve which, along with other analyses, cites a disturbing growth in corporate borrowing and heavy debt carried by marginal firms as posing risk to financial systems in the United States and China. The Federal Reserve writes:

Borrowing by businesses is historically high relative to gross domestic product (GDP), with the most rapid increase in debt concentrated among the riskiest firms amid signs of deteriorating credit standards. (p. 7)

In China easier access to credit, mainly enabled by the State reducing required bank reserves, has caused corporate borrowing to rise sharply since 2008 – 60 percentage points. There, corporate debt stands at 160% of China’s GDP, more than double the comparable ratio – 74% - for the U.S., a U.S. historical high. Of great concern as well to many inside and outside of China, including those at the upper echelons of the Chinese government, is the overall level of national debt in China – extraordinarily high at over 250% of GDP. This level of debt constricts the issue of new loans in the future, used in part by companies to service – to pay interest on or pay off – current loans. Kaiwen has taken out new loans for these purposes.

Prominent red flags raised by the Federal Reserve in its current report are (1)  the current level of debt carried by highly leveraged firms and (2) the growth in the issuance of new loans to these firms, the latter due to the lessening of credit standards and restrictions placed on borrowers by lenders – such as, prohibiting additional debt and the payment of dividends.

In general, highly leveraged firms carry debt well in excess of earnings, making them very vulnerable to loan default and bankruptcy in the event of an economic downturn.

For the Federal Reserve, firms that are highly leveraged are those with a ratio of company debt to EBITDA (annual earnings before the payment of interest and taxes, and the deduction of depreciation and amortization) above 6. (p. 19) It is desirable to have a ratio of 3 or less. This ratio measures the extent to which a company has extended its financial obligations beyond its earnings, risking that its fate will be in others’ hands. Another indicator of a highly leveraged firm is the doubling of total company financial liabilities (obligations) from one year to another.

Performing these calculations for Kaiwen Education reveals that it is a highly leveraged organization. From 2017 to 2018, Kaiwen’s total liabilities as a company grew 81%, from 934 million Yuan to 1.7 billion Yuan. More significant is the ratio that compares company debt to its annual earnings. At the end of 2018 Kaiwen had short-term debt of 199 million Yuan and long-term debt of 990 million Yuan, or a total reported debt of 1.19 billion Yuan. For 2018, company EBITDA was 10.9 million Yuan. For Kaiwen, then, the ratio of debt-to-EBITDA is a remarkable 109.1 (1.19 billion÷10.9 million), well beyond the Federal Reserve’s figure of 6. First quarter results from this year indicate that Kaiwen has paid off its short-term debt, almost certainly using funds from its long-term loans. However, the calculation of this ratio just using Kaiwen’s remaining long-term debt of 990 million Yuan still yields a number well beyond 6 – 90.8. 
5/20/19

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  • Home
  • About
    • Mission Statement
    • Chapter Meeting Minutes
    • Presentations from AAUP Meetings
    • Meeting Dates 21-22
    • Points of Contact
    • AAUP Officers
    • AAUP Awards >
      • Bertram Mott Award
      • Henry J. Frank Award
    • P&T Committee Members
    • APC Committee Members
    • UAPC Committees
    • Training for College/School Academic Policy Committee Members
    • CIM Training Video
    • Membership
    • Assumption of Risk and Waiver Form for Employees that is required for travel funds
  • Contract
  • Grievances
    • Grievance Process
    • Amendments to Grievance Process, Updated April 2016
    • Grievance Procedure Explained
  • Constitution
    • I - Name
    • II - Purpose
    • III - Membership
    • IV - Dues
    • V - Chapter Officers
    • VI - Committees
    • VII - Election of Officers
    • VIII - Removal of Officers
    • IX - Disciplining of Members
    • X - Meetings
    • XI - Contract Ratification
    • XII - Finance
    • XIII - Amendments
  • Saving WCC
    • Decision on Standing Lawsuit
    • AAUP Response to Provost Fredeen's October 2nd Email
    • Important Information on Campus Consolidation
    • Chinese Company Out As Buyer Of Westminster Choir College
    • Kaiwen is Gone
    • Kaiwen Education Reply to a June 2019 Inquiry from the Shenzhen Stock Exchange
    • Update on Kaiwen Education's Financial Status
    • Arbitration Over Layoffs at WCC
    • Kaiwen Education 2018 Annual Report
    • By Federal Reserve Standards Kaiwen Education is a Highly Leveraged and Risky Business
    • Two Updates on Kaiwen's Finances
    • Due Diligence and Kaiwen Education
    • Chronology of a Crisis
    • WCC Reset
    • New Jersey Attorney General’s Office Delivers Major Setback to Rider University’s Plan to Sell Westminster Choir College
    • Westminster Foundation Press Release on AG Investigation
    • Purchase Agreement
    • Faculty Shocked to Learn Secret Agreement Would Allow Buyer to Close Westminster Choir College
    • Universities as the Guardians of Assets
    • Press Release Kaiwen Finances
    • 2019 Report on Kaiwen
    • DejaVuDellOmo
    • Kaiwen Announcement 1/11/19
    • AAUP Goes to the NJ Assembly
    • Sign the Petition to Save WCC
    • WWCAC Letter November 8 2018
    • Kaiwen Education: Report on Company Performance Through the Third Quarter 2018
    • New Information Reveals Chinese Corporation Plans to Take $20 Million Westminster Choir College Endowment despite Prohibitions Imposed by State/Federal Law
    • More Bad News about Kaiwen
    • Claims v. Reality
    • AAUP Challenges Legitimacy of Newly announced Non-Profit Said To Be Created To Run Westminster Choir College
    • Label Your Stuff!
    • WCC Alumni Council Questions and Answers
    • Statement on Proposed Sale of Westminster Choir College Faculty Union Vows to Continue Oppose ill-conceived Sale of Iconic Music School
    • June 7 Letter to Board
    • A Failure of Due Diligence
    • Bond 2017
    • Chronology of the WCC Crisis
    • Kaiwen Education Technology
    • Pending Legal Actions >
      • Legal Complaints against Rider University over Sale of WCC
    • The Legacy of Westminster Choir College
    • Updates and Information Sent to Faculty from AAUP Leadership >
      • A Letter to WCC Faculty regarding President Dell'Omo's Letter
      • Open Letter to Board of Trustees
      • Letter to Faculty
      • How a For-profit Company Might Ruin Westminster
      • A Message from AAUP regarding the potential layoff of Westminster Faculty
      • ​Update on Westminster
    • Press Releases >
      • Outrage Over Rider University's Plan To Sell Legendary Choir College To Chinese For-Profit Company With No Experience in Higher Education
      • DellOmo Lays Off Entire WCC Faculty
    • WCC Crisis in the News >
      • The Coalition to Save Westminster Choir College Initiates Spin-Off Discussions With Rider University Administration
    • Letters of Support for WCC >
      • Eric Whitacre Praises Westminster
      • Statement of support from NJ Higher Ed Leadership Council.
      • Support for Westminster Choir College
    • Teach In at WCC
    • WCC Teach In Audio >
      • Remarks by Laura Brooks Rice
      • Have American Universities Lost Their Way? by Joel Phillips
    • Governance Standards in Institutional Mergers and Acquisitions
  • 2022 Negotiations
    • Negotiation Updates
    • STRIKE FAQ
    • AAUP's Response to Admin's "Critical Need for Change"
    • AAUP v. Admin Proposals
    • CREDO >
      • Admin's Prioritization Report
      • WCC Students Petition DellOmo
      • Dr. Sanjay G. Reddy Speaks to the Chapter
      • A Bargaining Unit Member's Guide to Credo Part 1
      • A Bargaining Unit Member's Guide to Credo Part 2
      • Rider AAUP Executive Committee Recommendations Concerning Credo Consulting
      • Administration Attempts to Bully AAUP Executive Committee
      • Save Rider Rally