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March 28, 2008

Nonprofit Groups Face Interest-Rate Spike

Nonprofit groups are beginning to feel the effects of credit-market turmoil in an explosion of high interest charges that are quickly tightening budgets and forcing some groups to cut back on services, reports The Boston Globe.

Among nonprofit groups in the New England area, the public-television organization WGBH now faces $1-million in unexpected interest charges. The station’s chief executive, Jonathan C. Abbott, says that programs the station offers could be affected as a result.

Nonprofit groups have mostly been affected by the recent credit-market crisis because of the ways in which they have traditionally borrowed money. Those that sell their debt at weekly auctions to determine the interest rate on their borrowing have been particularly vulnerable to rate fluctuations, but even organizations such as WGBH, which use variable bonds that reset every week based on certain bond indexes, have been subject to interest-rate spikes.

WGBH and other local nonprofit groups have recently persuaded the state agency, MassDevelopment, to allow them to refinance or restructure their debt into lower-cost loans with more-stable rates.

Although WGBH will attempt to complete its refinancing as soon as possible, Mr. Abbott expressed dismay at the unexpected costs now faced by so many nonprofit groups. “It’s like a virus, the way it’s infected the financial markets,” he said and added, “You’ve got a lot of relatively conservative institutions that are just dismayed.”

See The Chronicle’s article on the credit crunch facing nonprofit groups.

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