Dear Members of the Saint Mary's Campus Community,

Given the recent volatility in global financial markets and the related decision by Moody's Investor's Services to place Saint Mary's on its 90-day watch list, I am writing to provide an update on the College's financial position and to place Moody's decision in its proper context.

As you may have guessed, the recent turmoil in global financial markets has had a somewhat negative impact on Saint Mary's College finances, especially on its endowment investments and debt structure. The impact has been somewhat muted, however, by the College's strong operating results, positive enrollment outlook and by procedures put in place during the last global economic downturn.

The audit of the College's financial statements is currently underway, and it will show significant growth in operating revenues and endowment assets. Recent enrollment reports are also projecting continued enrollment growth from undergraduate students for fall 2011.

The College's finance staff, Investment Committee members and investment consultant Wilshire Associates have been continuously monitoring the valuation and risk profile of the College's endowment investment portfolio during the latest market turmoil. The Investment Committee has the authority from the full Board of Trustees to make investment asset allocation changes as needed to preserve the value of the endowment and to stay in compliance the College's bond covenants. To date, the decline in the endowment's stock holdings has not been significant enough to cause the Investment Committee to make a change in long-term asset allocation targets.

I should note that endowment investments were transitioned back to long-term asset allocation targets earlier in 2011. These long-term targets have greater exposure to domestic and international stocks which, over long periods of time, have provided the engine for overall endowment growth.

The College's finance staff, Finance Committee and financial advisor PFM Group have also been continuously monitoring the College's variable rate debt structure and compliance with the associated bond covenants. In addition, they have been continuously evaluating alternative debt structures that to date, while less risky, would come at a considerable increase in debt service costs.

The volatility in worldwide financial markets, the federal debt crisis, the credit downgrade of the United States by Standard & Poor's, and growing concerns about the risks associated with variable rate debt structures are likely factors that caused Moody's Investor's Service to recently issue an updated ratings report on the College. The report places the College on a 90-day watch list for a possible downgrade from its current Baa1 credit rating even thought the College has not violated any of its bond covenants and has a much stronger financial position than when Moody's last rated the College in August 2009.

The College's finance staff, Finance Committee and PFM Group will use the 90-day watch-list period to address Moody's concerns, as outlined in their ratings report. The 90-day watch list period will provide time for the College to complete its FY 2010-2011 financial statements audit and verify strong operating results, to certify compliance with its credit covenants, to certify continued fall enrollment growth, and to work with the other parties to the variable rate debt structure to formulate contingency plans and/or modify the debt structure.

If you have any concerns or questions about this report, please feel free to contact me. Thank you.

Peter A. Michell, Vice President for Finance

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