Savings on agenda for Wayne State University refunding deal

The Wayne State University Board of Governors will return to market with $31.8 million of Series 2024A general revenue refunding bonds.

Proceeds of the deal, scheduled to price Aug. 21, will be used to refund a portion of the Detroit-based school's outstanding Series 2015A general revenue and refunding bonds.

The new deal arrives with Wayne State maintaining its ratings: Aa3 from Moody's Investors Service (MCO) at A-plus from S&P Global Ratings. Both assign stable outlooks.

Patrick Ronk, assistant vice president for Moody's, noted that Michigan faces weak in-state and regional demographic trends, leading to enrollment declines for regional public universities across the state.

"This trend was exacerbated even more during COVID for many of the in-state public universities, particularly due to soft undergraduate enrollment," he said. "Wayne State has had declining enrollment over the last decade, but has been relatively more stable in part due to its location in Detroit that allows it to pull from a metropolitan area with a high population, as well as its diverse program offerings, particularly its graduate programs, medical school, and law school that provide for enrollment stability even as undergraduate enrollment has softened."

As a result, Ronk said, net tuition revenue and operating performance have remained stable, "which does speak to an effective financial management and a strong track record of maintaining budget discipline in a difficult revenue environment."

Siebert Williams Shank & Co. is sole manager on the deal. Blue Rose Capital Advisors is the municipal advisor, and Miller, Canfield, Paddock and Stone is bond counsel.

As of Sept. 30, 2023, WSU had about $529.6 million of outstanding debt, most of that fixed-rate revenue bonds.

In its credit opinion, Moody's projected that WSU's operating performance will remain steady through fiscal years 2024 and 2025 due to stable enrollment, growth in net tuition revenue and a "modest" rise in state operating appropriations. It said the university's reserves are strong and growing ? total cash and investments surpassed $1 billion in fiscal 2023 ? and WSU's significant research portfolio and steady philanthropy bolster its strategic position.

Moody's noted that the total adjusted debt for fiscal 2023 includes $227 million from a concession arrangement with Corvias over the university's student housing.

"The public-private partnership faces ongoing occupancy and net revenue difficulties," the rating agency added. "The university has not and does not plan to divert resources to support the net revenue performance of the project."

The full extent of future enrollment declines will hinge on the demand for WSU's graduate and professional programs, and its ability to widen its geographic reach, Ronk said.

In its rating report, S&P pointed to "a broad pledge of general revenue" that includes student fees, tuition, auxiliary revenue and unrestricted income securing WSU's bonds.

It characterized as "strong" the university's enterprise risk profile, given WSU's growth in first-year applications over the past couple years, selectivity and matriculation rate, "supportive philanthropic base" and its role as one of Michigan's three R1 research institutions.

Still, S&P also noted enrollment challenges including declines in net tuition revenue, variable operating performance and liabilities from nonrecourse debt held by its partnership with Corvias.

Nicholas Fortin, associate director at S&P, said recent changes to senior leadership at WSU have not impacted the university's financial risk profile. Moreover, he said, the planned investment in a new School of Medicine and research center "aligns well with the university's strategic priorities."

S&P is awaiting finalized details of the project, but "we believe the project, as proposed, could have a positive impact on the reputation and capabilities if executed successfully," he said.

Fortin noted the university's absolute debt outstanding as of fiscal 2023 is more than double the median of $227.3 million 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 cash and investments to debt outstanding is 220.9%, he said ? stronger than the median for its rating category.

The structure of the revenue bonds is also a point in WSU's favor, Fortin said.

"We believe that the fixed-rate structure of the bonds, coupled with a broad revenue pledge including student fees, tuition, auxiliary revenue and unrestricted income, limits the university's exposure to interest rate risk, remarketing risk, liquidity risk, etc.," he said.

According to a recent investor presentation, the university's fall 2023 enrollment stood at 23,702 students. Roughly 90% of them hail from Michigan, 16,266 were undergraduates and 26% of those undergraduates were minorities.

The only major research university in the tri-county area around Detroit, WSU is one of the city's largest employers. Its operations are funded mainly by state appropriations, student tuition and fees, federal government funding, donations and investments, with state appropriations making up 20.4% of total net revenue for fiscal 2022-23.