The Wayne State University Board of Regents will return to the market with $31.8 million in Series 2024A general revenue repayment bonds.
Proceeds from the transaction, the price of which is expected to be announced on August 21, will be used to repay a portion of the outstanding Series 2015A proceeds and to repay bonds of the Detroit-based school.
The new deal comes as Wayne State maintains its credit ratings: Aa3 from Moody’s Investors Service and A-plus from S&P Global Ratings, both of which indicate stable outlooks.
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Patrick Ronk, assistant vice president at Moody’s, pointed out that Michigan is facing weak demographic trends inside and outside Michigan, leading to declining enrollment at regional public universities across the state.
“This trend has been exacerbated during COVID for many of the public universities in the state, particularly due to weak undergraduate enrollment,” he said. “Wayne State has had declining enrollment over the past decade but has been relatively more stable, in part due to its location in Detroit, which allows it to draw from a high-population metropolitan area, as well as its diverse range of degree offerings, particularly its graduate programs, medical school and law school, which have provided enrollment stability even as undergraduate enrollment has declined.”
As a result, net tuition revenues and operating performance have remained stable, Ronk said, “which speaks to effective financial management and a strong track record of maintaining fiscal discipline in a difficult revenue environment.”
Siebert Williams Shank & Co. is the sole manager of the deal. Blue Rose Capital Advisors is the municipal advisor and Miller, Canfield, Paddock and Stone is the bond advisor.
As of September 30, 2023, WSU had approximately $529.6 million in outstanding debt, most of it in the form of fixed-rate municipal bonds.
In its credit rating, Moody’s forecast that WSU’s operating performance will remain stable in fiscal years 2024 and 2025 due to stable enrollment, increasing net tuition revenues and a “moderate” increase in state operating expenses. The university’s reserves are strong and growing – total cash and investments exceeded $1 billion in fiscal year 2023 – and WSU’s significant research portfolio and steady philanthropy strengthen its strategic position.
Moody’s noted that total adjusted debt for fiscal year 2023 includes $227 million from a concession agreement with Corvias for the university’s student housing.
“The public-private partnership is struggling with ongoing occupancy and net revenue issues,” the rating agency added. “The university has not diverted resources to support the project’s net revenue development and does not plan to do so.”
The actual extent of future enrollment declines will depend on demand for WSU’s graduate and professional programs and its ability to expand its geographic reach, Ronk said.
In its rating report, S&P cited a “broad commitment of general revenues,” which includes student fees, tuition, ancillary revenues and unrestricted revenues to back WSU’s bonds.
The university’s enterprise risk profile was described as “strong,” given the increase in freshman applications in recent years, its selectivity and enrollment rate, its “supportive philanthropic base,” and its role as one of Michigan’s three R1 research institutions.
However, S&P also cited enrollment challenges, including declining net tuition revenues, fluctuating operating results and liabilities from non-repayable debt from the partnership with Corvias.
Nicholas Fortin, associate director at S&P, said recent changes in WSU’s leadership have no impact on the university’s financial risk profile. In addition, he said, the planned investment in a new medical school and research center “fits well with the university’s strategic priorities.”
S&P is still waiting for final details of the project, but “we believe that the project as proposed could have a positive impact on reputation and performance if successfully implemented,” he said.
Fortin noted that the university’s total outstanding debt in fiscal year 2023 is more than double the $227.3 million median for the 68 colleges in the A rating category. But he said context is important: WSU’s cash and investments at the end of fiscal year 2023 were more than seven times the median for that rating category.
Thus, WSU’s ratio of cash and investments to outstanding debt is 220.9%, which is stronger than the median value for its rating category.
The structure of the revenue bonds also speaks in favor of the WSU, said Fortin.
“We believe the fixed-rate structure of the bonds, coupled with a comprehensive revenue commitment that includes student fees, tuition, ancillary revenue and unrestricted income, limits the university’s interest rate risk, remarketing risk, liquidity risk, etc.,” he said.
According to a recent
As the only major research university in the Detroit tri-county area, WSU is one of the city’s largest employers. Its operations are funded primarily by state appropriations, tuition fees, federal funds, donations and investments, with state appropriations accounting for 20.4% of total net revenues in the 2022-23 fiscal year.
