NOTE: On May 27, 2022, the press release was corrected as follows: The headline was changed to “Moody’s assigns Baa1 to DePauw University, IN’s proposed Series 2022A and Series 2022B bonds; outlook is stable.”
New York, May 26, 2022 -- Moody's Investors Service has assigned a Baa1 to DePauw University, IN's proposed Educational Facilities Revenue Bonds, Series 2022A (Tax-Exempt) (DePauw University Project) and Series 2022B (Federally Taxable) (DePauw University Project) with expected par amounts of $123 million and $9 million, respectively. The proposed bonds will be fixed rate and amortizing with final maturities in fiscal 2053 and 2027. We maintain a Baa1 issuer rating as well as a Baa1 rating on the university's outstanding revenue bonds. The university had $158 million of debt outstanding at the end of fiscal 2021. Post-issuance, the Series 2019, Series 2022A and Series 2022B bonds will be the only outstanding long-term debt of the university. The outlook is stable.
RATINGS RATIONALE
Maintenance of the Baa1 issuer rating reflects DePauw's strong overall wealth and liquidity, providing the university with notable runway to address the speculative elements of its market profile and operating performance. Cash and investments totaled nearly $795 million in fiscal 2021, providing very strong coverage of both debt and operations. Philanthropic support is solid and supported both the university's operations and growth in financial resources. Credit constraints are significant, driven primarily by DePauw's challenged student market that has resulted in declining net tuition per student. Management has not fully restructured core expenses in line with revenue losses, resulting in structural imbalances over multiple years and annual debt service coverage, as calculated by Moody's, consistently below 1x. The university has taken extraordinary endowment draws to offset its core operating deficits and expects to do so this year as well. Other credit considerations include a modest scale of operations, a proposed conservative debt restructure, and very high debt to EBIDA and debt to operations.
The assignment and maintenance of the Baa1 revenue bond ratings reflects the issuer rating and general obligation nature of the revenue pledge.
RATING OUTLOOK
The stable outlook is driven by the university's very strong wealth and liquidity that limits the likelihood of a further downgrade over the next one to two years, although inability to address structural imbalance would lead to longer term credit deterioration.
FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS
- A pronounced and durable improvement in brand and strategic positioning
- Significant and sustained strengthening of operating performance, including balanced budgeting and realistic forecasting with a demonstrated ability to align expenses with the university's revenue prospects
FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS
- Material declines in total wealth and liquidity, which is the primary element supporting the university's investment grade credit quality
- An inability to make progress in bringing operations into alignment, highlighting ongoing weakness in the university's core business model and management
LEGAL SECURITY
All of the university's bonds, including the proposed Series 2022A and Series 2022B bonds, are unsecured general obligations of the university.
USE OF PROCEEDS
Proceeds from the Series 2022A bonds will be used to refinance all or a portion of the university's outstanding Series 2008A, Series 2014, Series 2015, and Series 2018 bonds. It will also go towards terminating the Series 2018 interest rate swap and pay the cost of issuance. Proceeds from the Series 2022B bonds will be used to fund the termination of the Series 2002 and Series 2006 swaps and pay the cost of issuance.
With the planned issuance of Series 2022A and Series 2022B bonds, DePauw will materially reduce debt structure risks with a refinancing of all variable rate bonds and privately placed debt, as well as funding the termination of outstanding interest rate swaps. After the refunding, all of the university's bonds will be fixed rate and amortizing.
PROFILE
DePauw University is a small private, not-for-profit university located in Greencastle, IN. In fiscal 2021, DePauw generated operating revenue of $84 million, as adjusted by Moody's, and enrolled just over 1,700 full-time equivalent (FTE) students as of fall 2021.
METHODOLOGY
The principal methodology used in these ratings was Higher Education Methodology published in August 2021 and available at https://ratings.moodys.com/api/rmc-documents/72158. Alternatively, please see the Rating Methodologies page on https://ratings.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 on https://ratings.moodys.com/rating-definitions.
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 issuer/deal page for the respective issuer on https://ratings.moodys.com.
The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website https://ratings.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://ratings.moodys.com/documents/PBC_1288235.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on https://ratings.moodys.com.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on https://ratings.moodys.com.
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Jared Brewster
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