North Idaho College’s bond ratings were downgraded last week after the school’s accrediting agency issued a sanction of show cause, the final step before losing accreditation.

“The most important step is occurring right now – the recognition by the board and the NIC community that there are no additional chances,” Greg South, the college’s interim president, wrote in a Feb. 10 email to staff and students after meeting with accreditation representatives.

The Northwest Commission on Colleges and Universities, the body that accredits NIC, issued a letter Feb. 9 rejecting NIC’s response to a December warning letter that required the college to show how it remains eligible for accreditation.

NIC’s response to the warning, sent in early January, “combined with recent and continuing public actions of the NIC board of trustees, fails to adequately demonstrate that the institution is in compliance with a number of NWCCU Eligibility Requirements and Standards for Accreditation,” the NWCCU letter said.

Now the college must respond with a “show cause” report by March 31. The due date was extended from March 13 to give NIC more time to complete the report, which must present evidence for why its accreditation should not be withdrawn and should include a teach-out plan showing how current students will be able to finish their education.

“I am immensely disappointed that we have come to this point as a college,” said Damian Maxwell, president of the college’s student association. “I think the NWCCU outlined exactly what they needed to see in order for us to remain accredited under their standards, and the board of trustees wanted to pick and choose what they would follow.”

Maxwell said since the news came out, “there has been a tangible heaviness weighing on students, staff and faculty” across campus.

NWCCU has accredited NIC since 1947.

The show cause letter said the NIC board of trustees failed to respond sufficiently to previous warnings.

“Numerous complaints from members of the NIC and Coeur d’Alene communities have continued to be received by NWCCU,” the letter said. “Ongoing actions of the NIC Board – some documented in the press – continue to place the institution at risk for viability.”

The letter lists numerous “institutional risks” including recent lawsuits, frequent changes in leadership, declining enrollments, exodus of staff and uncertainty as to who the CEO is at the school, with President Nick Swayne placed on administrative leave and South appointed as the interim president.

It also lists risks of “significant financial stress,” including expanded payroll for two presidents, increased insurance costs, declining donor support and the school’s bond rating.

Moody’s Investors Service on Thursday downgraded NIC’s issuer rating to A3 from A1 and its revenue bond rating to A3 from A2, citing governance dysfunction and the show cause order. Ratings in the A range are considered upper-medium investment grade.

Laura Rumpler, chief NIC communications officer, said the downgrade is “unfortunate” but does not impact the college’s financial strength.

“NIC does not carry any debt other than our bond issued by the Dormitory Housing Commission,” she said. “We have no capital plans that would require us to go out for a bond.”

Rumpler said the downgrade was expected after the show cause letter.

“Moody’s Investors Service has shared that our rating may be re-evaluated and improved pending the results of NWCCU’s decision in June,” she said.

The downgrades affect $7.9 million in rated debt.

In a news release, Moody’s said factors that could lead to an upgrade of the ratings would be a “period of stabilization” in college governance and management “evidenced by predictable board actions, policies, and procedures,” growth in enrollment and increases in operating margins and reserves.

In a statement posted on the school’s social media channels, NIC said it is taking steps to comply with the NWCCU’s request.

“To receive a Sanction of Show Cause does not mean the immediate loss of accreditation,” the statement said. “As part of the Show Cause Report, NIC will provide an overarching and preliminary response to a ‘teach out plan’ and will continue working with the NWCCU to meet the requirements to remove the sanction. As we know more about our next steps, we will post updates to our website and send communications to our employees and students.”

The show cause sanction requires an on-site visit, scheduled for April 26-27, when a five-person peer review team will verify the information in the report and teach-out plan. A previously scheduled regular campus visit will be delayed until fall 2023, pending the results of the show cause visit.

The NWCCU commissioners will meet to evaluate NIC in June. The college will have an opportunity to appeal in July.

“An important emphasis shared today is that the NWCCU is looking for cooperation from everyone,” South said in his email. “All board members must set aside differences and come together to work with one another for the best interests of the students at the college. Employees and the community-at-large also need to play a role in this process by exhibiting positive actions towards achieving a path forward by supporting the board of trustees’ efforts in working together.”

The next NIC board meeting is Wednesday.