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Rating Action:

Moody's assigns Aa3 to Wayne State University, (MI)'s proposed Series 2020A revenue bonds; outlook is revised to negative

07 Jul 2020

New York, July 07, 2020 -- Moody's Investors Service has assigned a Aa3 to Wayne State University, MI's (WSU) proposed General Revenue Bonds, Series 2020A (Taxable) totaling approximately $116 million with a final maturity in fiscal 2051. We have also affirmed the outstanding Aa3 on approximately $430 million of outstanding bonds. The outlook has been revised to negative from stable.

RATINGS RATIONALE

The revision of Wayne State University, MI's (Aa3, negative) outlook to negative primarily reflects continued institutional structure and governance credibility risks with rising fiscal challenges as the university confronts likely state funding cuts for fiscal 2021. Board dysfunction over the last several years has been public and has included challenges against the president, a lawsuit pitting board members against one another, and a loss of a potential new primary long-term care partner-which is critical for the long-term success of the medical school. The university's clinical practice groups have also faced their own financial troubles, and the relationship with Detroit Medical Center, the current clinical partner, has been fraught with issues, posing reputational difficulties for the university. As COVID-19 introduces greater operational and financial disruptions, effectively functioning governance and management will be even more important to strategic decision-making.

Affirmation of Wayne State University's (WSU) Aa3 and assignment to the proposed bonds reflect its important role as a public, comprehensive urban university serving a significant educational and economic development function for the State of Michigan (Aa1 stable) and City of Detroit (Ba3 positive). A comprehensive array of programs, relatively steady student demand and a sizeable research portfolio bolster the university's overall scale, and provides solid revenue diversity. With fiscal year 2019 ending (September 30) total cash and investments of $822 million, which includes $583 million of spendable cash and investments, the university's wealth provides operating flexibility and long-term prospects are aided by strong fundraising. Leverage, which has historically been a credit strength for the university, is now slightly elevated compared with other Aa3 peers, but is still manageable given the university's size and financial resources. Additional material new debt, however, without improved operations or additional financial resources would lead to additional credit pressure. Additional credit factors considered include low exposure to postretirement benefit liabilities, low revenue growth in recent years, a heavy reliance on students from the State of Michigan, and a sizable commuter student base.

We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety. The coronavirus (COVID-19) situation has created dislocation across industries and geographies, triggering urgent challenges for many businesses and organizations to address. Due to WSU's primarily commuter student base and privatized student housing, estimated operating impacts for fiscal 2020 are modest when including receipt of CARES Act funding. The university is planning for a resumption of in-person classes in the fall, as well as students living in residence facilities, with mandatory health and safety guidelines that include social distancing and wearing of face coverings.

RATING OUTLOOK

The negative outlook reflects governance and management challenges that continue to depress the university's strategic position, reflected in challenging partnerships between its medical school and primary clinical care provider, as well as continued board tensions. It also reflects potential for a significant cut in state support in fiscal 2021 leading to potential weakening of already comparatively thin operating performance.

FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS

- Significant increase in spendable cash and investments

- Sustained gains in operating cash flow margins, above mid-double digits

FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS

- Inability to improve governance and management credibility, including challenges with affiliated physician practice and pediatrics practice, leading to continued operational and reputational risks

- Significant state funding reductions, or other revenue or expense hits due to coronavirus impacts, without offsetting actions, leading to weaker operating performance and reduction in liquidity

- Significant increase in debt without at least stable operating performance and growth in financial reserves

- Inability of medical school to find a long-term primary care partner that aligns with its mission and research goals

LEGAL SECURITY

All of WSU's bonds, including proposed Series 2020 bonds, are secured by a pledge of General Revenues, which constitutes all student tuition and fees, net auxiliary revenues, indirect cost recoveries, and unrestricted investment income, but exclude state appropriations, gross revenue from the university's housing facilities that are controlled and operated by Corvias Campus Living - WSU, LLC, and other restricted revenues.

USE OF PROCEEDS

Proceeds from the Series 2020 bonds will go towards the renovation, furnishing, and equipping of State Hall, as well as additional capital projects on campus and cost of issuance.

PROFILE

Wayne State University is a comprehensive public university located in Detroit, Michigan. Its operations are sizeable, with over 20,000 FTEs generating nearly $875 million of operating revenue. Despite its size and broad array of programs, it primarily draws students from the Detroit metropolitan area and surrounding counties, but has maintained stable student demand.

METHODOLOGY

The principal methodology used in these ratings was Higher Education published in May 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1175020. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Jared Brewster
Lead Analyst
Higher Education
Moody's Investors Service, Inc.
7 World Trade Center
250 Greenwich Street
New York 10007
US
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Susan Fitzgerald
Additional Contact
Higher Education
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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