Moodys.com
Please Note
We brought you to this page based on your search query. If this isn't what you are looking for, you can continue to Search Results for ""
The maximum number of items you can export is 3,000. Please reduce your list by using the filtering tool to the left.
Close
Close
Email Research
Recipient email addresses will not be used in mailing lists or redistributed.
Recipient's
Email

Use semicolon to separate each address, limit to 20 addresses.
Enter the
characters you see
Close
Email Research
Thank you for your interest in sharing Moody's Research. You have reached the daily limit of Research email sharings.
Close
Thank you!
You have successfully sent the research.
Please note: some research requires a paid subscription in order to access.
Rating Update:

MOODY'S AFFIRMS EASTERN MICHIGAN UNIVERSITY'S A1 LONG-TERM DEBT RATING; OUTLOOK REVISED TO STABLE FROM NEGATIVE

14 Apr 2011

RATING ACTION AFFECTS $240.9 MILLION OF RATED DEBT OUTSTANDING

Board of Regents of Eastern Michigan Univ.
Higher Education
MI

Opinion

NEW YORK, Apr 14, 2011 -- Moody's Investors Service has affirmed the A1 long-term rating of Eastern Michigan University ("The University" or "EMU"). The rating outlook has been revised to stable from negative, reflecting the stabilization of senior leadership, improved fiscal discipline resulting in favorable operating performance, and its ability to grow enrollment and net tuition revenue despite adverse economic outlook within Michigan. This rating action affects $240.9 million of debt outstanding, as detailed in the RATED DEBT section below. Moody's also rates the variable rate Series 2009 A and 2009 B Aa1/VMIG1 based on a letter of credit from JPMorgan Chase Bank, N.A.

SUMMARY RATING RATIONALE: The A1 rating and stable outlook reflect EMU's favorable operating performance, sound market position as a large regional public university, and lack of near-term borrowing plans. The rating and outlook incorporates EMU's high balance sheet and operating leverage, debt structure that adds operational and liquidity risks, and the imminent reduction in the state funding.

STRENGTHS

*Strong market position as a large, regional public university in Ypsilanti, Michigan with modest growth of enrollment in recent years resulting in a current full-time equivalent of 18,356 students.

*Multi-year improvement in operating performance despite pressure on state funding. During fiscal years 2008-2010, annual operating performance has averaged 1.0%, as calculated by Moody's. Management projects that FY2011 operations will be close to break even.

*Broad diversity of pledged revenues, including tuition and fees, dedicated to debt service payments and can be increased, if necessary. Rate covenant and other structural features provide additional bondholder security.

*Net tuition revenue and net tuition per student have grown in each of the past two years driven by tuition and enrollment increases. In FY 2010, the University generated $9,066 of net tuition per student, a 7.4% increase over FY 2007.

CHALLENGES

*Highly leveraged balance sheet at the A1 rating level, with expendable financial resources covering debt by a modest 0.32 times and a high debt-to revenues ratio of 0.78 times for FY 2010. Moody's expects these leverage metrics to improve gradually as the debt is amortized and no additional debt issuance is planned for the next 2-3 years. In the intermediate term, EMU is likely to remain highly leveraged, and has limited additional debt capacity at the current rating.

*Current debt structure carries operational and liquidity risks. In addition to renewal risks, bank agreements supporting the Series 2009A and 2009B bonds contain covenants and events of default, which, if breached, could result in a mandatory tender of the variable-rate demand bonds and a call on the University's liquidity to repay the bank over a timeframe much shorter than the original debt maturity schedule. EMU's FY 2010 unrestricted cash and investments that could be liquidated within a month are at $85.8 million, covering demand debt of $125.8 million by a thin 0.68 times.

*Economic challenges in the State of Michigan strain direct state support (comprising 26% of Moody's adjusted operating revenue in FY 2010) and limit the University's ability to grow revenues and invest in new strategic initiatives. FY 2012 state appropriations are expected to be reduced by 19%.

DETAILED CREDIT DISCUSSION

LEGAL SECURITY: Pledged revenues consist of tuition, fees, grants and gifts, sales of educational services, investment income and revenue from the housing and auxiliary services. State appropriations, restricted gifts and grants, money held in escrow, and up to 5% of revenues from fees are excluded from pledged revenues. There is no debt service reserve fund. There is a rate covenant and additional bonds test which require pledged revenues to cover annual principal and interest payments on parity debt by at least two times and subordinate debt by at least one time. In FY 2010, pledged revenues of $240.5 million provided 15 times coverage of maximum annual debt service (based on gross revenues).

DEBT-RELATED RATE DERIVATIVES: The University has three interest rate swap agreements with two counterparties on the total notional amount of $124.8 million to hedge interest rate risk on the Series 2009A and 2009B bonds. Eastern Michigan has a swap with Piper Jaffray Financial Products, Inc. for which credit support is provided by Morgan Stanley Capital Services (Morgan Stanley rated A2/P-1). This swap with a notional amount of $84.09 million expires June 1, 2036. Eastern Michigan receives a floating rate (62% of one month LIBOR index plus 0.2%) and pays a fixed rate of 3.3%. EMU has two interest rate swap agreements with JPMorgan Chase Bank, N.A. (rated Aa1/P-1) (agreements novated from Bear Stearns Financial Products) which expire on June 1, 2027. For the JPMorgan agreements, EMU receives a floating rate based on SIFMA on the notional amount of $16.06 million and a floating rate based on LIBOR on the notional amount of $24.08 million. It pays a fixed rate of 4.7%. Under the swap agreements, the University could be required to post collateral if the University's underlying rating falls below A3 and the fair value of the swap exceeds a threshold of negative $10 million to the University. In addition, these swap agreements could be terminated under certain circumstances, including the downgrade of the University or counterparty below investment grade by one rating agency. The combined mark-to-market value of the swaps as of February 28, 2011 is negative $12.5 million.

RECENT DEVELOPMENTS

Governance and Management: Following a period of significant turnover of the University's governance and management team, most positions were filled on a permanent basis, which has improved EMU's credit fundamentals over time. The management team has taken proactive steps to bring operating discipline. There is a dedicated focus on careful containment of operating expenses, budget monitoring, and improving unrestricted resources. Operating cash flow margins, by Moody's calculations, have significantly improved; 3.2% in FY 2007,11.2% in FY 2010. Moody's believes that these management practices are necessary to limit the risk of any sharp decline in the University's operating margins and financial resources. We anticipate improved performance will continue given the stability of management and management's attention to expense containment.

Student market: Eastern Michigan University has experienced modest enrollment growth, driven by increased transfer enrollment. In fall 2010, the number of transfer students (2,177) exceeded the number of first-time freshman (2,012). Management notes pricing sensitivity has resulted in an increase in traditional aged students attending community college before transferring to EMU. EMU has been successful in enrolling transfer students with the help of articulation agreements and strategic relationships with nearby community colleges. The management reports that the University has over 100 articulation agreements with local community colleges. EMU also has a reciprocal agreement with Ohio under which the applicants from Ohio are charged an in-state tuition, resulting the growth of out of state enrollment to 15% in 2010 from 9% in 2009. The preliminary application data for fall 2011 suggest that freshman applications and transfer student applications are 28% and 27% higher respectively than in the same period last year. The management, however, reports that the most universities that EMU competes with also experienced an increase in the applications in the same range. EMU's management is focusing on diversifying student geographic base in order to offset the projected declines in high school graduates. Several strategic financial aid initiatives have been implemented to focus on attracting students from Ohio, Illinois, and Indiana, as well as, from underrepresented areas of metro Detroit, including the counties of Macomb, St. Clair, Oakland, and Warren. Management is experiencing a positive response from these communities as evidenced by an 18% growth in housing contracts compared to the same period last year.

Operating Performance: Improved fiscal discipline has resulted in three consecutive years of favorable operating performance, as calculated by Moody's, despite pressure on state funding. In FY 2010, cash flow margin of 11.2% provided a healthy debt service coverage of 1.99 times. The management team has taken various initiatives to improve operating performance and rebuild the balance sheet. Some of these initiatives included instituting a pay freeze for 100 highest compensated staff members, personnel reductions, implementing "Shared Rewards" program linking pay increases to the University's revenue growth and ability to pay, and several significant infrastructure investments that have resulted in energy usage reductions. The management also reports restructuring employee healthcare benefits, which have been increasing for over $2 million per year. Last fall, the University re-negotiated benefits contracts with 700 professors and 400 employees to reduce the health care costs sharing from 90% to less than 80% for the University.

State appropriations continue to decline as a share of the University's operating revenue, with significant declines expected in FY 2012. In FY 2010, state appropriations accounted for 26% of the operating revenue base compared to 39% in FY 2001. According to the governor's proposal for FY 2012, the state funding is likely be reduced by another 19% to $61 million. The proposal also includes a tuition grant for $3.3 million on the condition that a tuition increase for fall 2011 is not in excess of 7% over the previous year. The University's management reports working on this scenario to adjust to the $15 million reduction in state funding. It plans to decrease expenses in the range of 15% to 20% resulting in about $10-12 million cost savings.

Financial Resources: We expect EMU to remain relatively highly leveraged compared to peers in the near-term; however, the launch of a capital campaign and lack of borrowing plans in the next two to three years should help improve balance sheet leverage. Expendable financial resources cover debt and operations at 0.23 times (FY 2009: 0.27) and 0.25 times (FY 2009: 0.29), respectively. In April 2010, EMU launched its first ever comprehensive fund-raising campaign "Invest. Inspire" targeted towards infrastructure and scholarships, with a goal of raising $50 million over three years. Management reports that as of February 28, 2011, $40.9 million has been pledged with $30 million received in cash and $8 million in revocable bequests.

Debt and Capital Plans: The University's debt composition is 52% in the variable rate mode (Series 2009 A and 2009 B) backed by letter of credit from JP Morgan Chase Bank N.A. The letter of credit has been extended through August, 2013. Moody's believes that EMU's monthly liquidity (unrestricted cash and investments that could be liquidated within a month ) of $85.8 million is limited to support its demand debt of $125.8 million providing a thin coverage of 0.68 times. Mitigating this risk, in Moody's view, is the University's term-out provisions in the Letter of Credit Reimbursement Agreements. The term out provisions provide EMU a repayment period of three years of equal quarterly payments in the event of failed remarketing of the bonds. While the University does not plan to borrow in the near term, it is requesting state capital funding for a science building which is expected to cost $38 million.

Endowment: As of June 30, 2010, EMU's foundation held $38 million of cash and investments that could be liquidated within one year and an additional $2 million with more than one year of liquidity. The fiscal 2011 year to date estimated endowment return ending December 31, 2010 is a favorable 16.5% compared to the fiscal 2010 return of 15.5%. The operating funds were allocated as follows: 12.5% equities, 37.2% fixed income, and 50.3% cash and equivalent.

Outlook

The stable outlook reflects our expectation of continued favorable cash flow generation driven by healthy growth in net tuition revenue and expense containment, despite pressure on state funding.

What Could Change the Rating - Up

Significant growth in liquidity, coupled with continued improvement in operating performance and market position.

What Could Change the Rating - Down

Additional borrowing without commensurate growth of financial resources, narrowing of liquidity position, sustained deterioration of operating performance or student market position.

KEY INDICATORS (Fall 2010 enrollment data and FY 2010 audited financial data):

Total Enrollment: 18,356 full-time equivalent students

Total Direct Debt: $240.9 million

Expendable Financial Resources: $76.2 million

Expendable Financial Resources to Direct Debt: 0.32 times

Expendable Financial Resources to Operations: 0.25 times

Three-Year Average Operating Margin: 1%

Reliance on state funding (% of Operating Revenue): 25.8%

State of Michigan General Obligation: Aa2, Stable

RATED DEBT

General Revenue Bonds, Series 2000: A1; insured by Ambac

General Revenue Bonds, Series 2000B, 2002A, 2002B, 2003A: A1; insured by FGIC

General Revenue Variable Rate Demand Refunding Bonds, Series 2009A & 2009B: A1 underlying (supported by a Letter of Credit from JPMorgan Chase Bank, N.A., expiration date 8/1/2013)

General Revenue Bonds, Series 2009C: A1; insured by Assured Guaranty

General Revenue Bonds 2009D: A1; bonds maturing from February 15, 2014 to and including February 15, 2038; insured by Assured Guaranty

CONTACTS

University: John Lumm, Chief Financial Officer, (734) 487-2032

PRINCIPAL METHODOLOGY USED

The principal methodology used in this rating was Public College and Universities published in November 2006.

Moody's adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

Analysts

Pranav Sharma
Analyst
Public Finance Group
Moody's Investors Service

Karen Kedem
Backup Analyst
Public Finance Group
Moody's Investors Service

Contacts

Journalists: (212) 553-0376
Research Clients: (212) 553-1653


Moody's Investors Service
250 Greenwich Street
New York, NY 10007
USA

MOODY'S AFFIRMS EASTERN MICHIGAN UNIVERSITY'S A1 LONG-TERM DEBT RATING; OUTLOOK REVISED TO STABLE FROM NEGATIVE
No Related Data.
© 2022 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE APPLICABLE MOODY’S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY’S CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS (“ASSESSMENTS”), AND OTHER OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. AND/OR ITS AFFILIATES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS, ASSESSMENTS AND OTHER OPINIONS AND PUBLISHES ITS PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS, AND PUBLICATIONS ARE NOT INTENDED FOR USE BY RETAIL INVESTORS AND IT WOULD BE RECKLESS AND INAPPROPRIATE FOR RETAIL INVESTORS TO USE MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS OR PUBLICATIONS WHEN MAKING AN INVESTMENT DECISION. IF IN DOUBT YOU SHOULD CONTACT YOUR FINANCIAL OR OTHER PROFESSIONAL ADVISER.

ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY LAW, INCLUDING BUT NOT LIMITED TO, COPYRIGHT LAW, AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY’S PRIOR WRITTEN CONSENT.

MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT INTENDED FOR USE BY ANY PERSON AS A BENCHMARK AS THAT TERM IS DEFINED FOR REGULATORY PURPOSES AND MUST NOT BE USED IN ANY WAY THAT COULD RESULT IN THEM BEING CONSIDERED A BENCHMARK.

All information contained herein is obtained by MOODY’S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided “AS IS” without warranty of any kind. MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third-party sources. However, MOODY’S is not an auditor and cannot in every instance independently verify or validate information received in the rating process or in preparing its Publications.

To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability to any person or entity for any indirect, special, consequential, or incidental losses or damages whatsoever arising from or in connection with the information contained herein or the use of or inability to use any such information, even if MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers is advised in advance of the possibility of such losses or damages, including but not limited to: (a) any loss of present or prospective profits or (b) any loss or damage arising where the relevant financial instrument is not the subject of a particular credit rating assigned by MOODY’S.

To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability for any direct or compensatory losses or damages caused to any person or entity, including but not limited to by any negligence (but excluding fraud, willful misconduct or any other type of liability that, for the avoidance of doubt, by law cannot be excluded) on the part of, or any contingency within or beyond the control of, MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers, arising from or in connection with the information contained herein or the use of or inability to use any such information.

NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY CREDIT RATING, ASSESSMENT, OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY’S IN ANY FORM OR MANNER WHATSOEVER.

Moody’s Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody’s Corporation (“MCO”), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody’s Investors Service, Inc. have, prior to assignment of any credit rating, agreed to pay to Moody’s Investors Service, Inc. for credit ratings opinions and services rendered by it fees ranging from $1,000 to approximately $5,000,000. MCO and Moody’s Investors Service also maintain policies and procedures to address the independence of Moody’s Investors Service credit ratings and credit rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold credit ratings from Moody’s Investors Service and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading “Investor Relations — Corporate Governance — Director and Shareholder Affiliation Policy.”

Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY’S affiliate, Moody’s Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody’s Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intended to be provided only to “wholesale clients” within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODY’S that you are, or are accessing the document as a representative of, a “wholesale client” and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to “retail clients” within the meaning of section 761G of the Corporations Act 2001. MOODY’S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors.

Additional terms for Japan only: Moody's Japan K.K. (“MJKK”) is a wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly-owned by Moody’s Overseas Holdings Inc., a wholly-owned subsidiary of MCO. Moody’s SF Japan K.K. (“MSFJ”) is a wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization (“NRSRO”). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively.

MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any credit rating, agreed to pay to MJKK or MSFJ (as applicable) for credit ratings opinions and services rendered by it fees ranging from JPY100,000 to approximately JPY550,000,000.

MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.

Moodys.com