CHICAGO — The near-collapse of a Cleveland-based private university could threaten the Cleveland-Cuyahoga County Port Authority’s future bond-issuing ability, Fitch Ratings analysts warned last week.
The debt-ridden Myers University, a private, nonprofit university located in downtown Cleveland that almost closed its doors last month, is in danger of defaulting on a $5.72 million loan made by the Port Authority in 2004. The loan was financed through the authority’s sale of tax-exempt revenue bonds, said the authority’s chief financial officer Brent Leslie.
Myers’ precarious financial position in part prompted Fitch Friday to revise its outlook to negative from stable on the BBB-plus rated authority. The authority’s outstanding bond-financed loans total $84.1 million. Myers is the fourth-largest borrower from the fund.
“The possibility of a loan default as well as other economic pressures throughout the region that could negatively affect other pool borrowers — that is the essence of the outlook revision,” said Fitch analyst Adrienne M. Booker.
Even if the university defaults on its near-term payments, the Port Authority has sufficient primary and secondary reserves, at $875,000, to cover the loss. The loan is further secured by a first mortgage lien on the university’s 40,000-square-foot facility in downtown Cleveland.
Analysts said the authority’s rating would survive intact even if Myers did default, as the bond fund’s total reserves of $23 million would be sufficient to the rating category. But a default could restrict the authority’s ability to issue debt in the future unless it is able to increase its capital, Booker said.
The authority’s $84.1 million of outstanding debt funded 22 separate loans. The authority must maintain a reserve equal to at least 20% of outstanding loans. Of the 22 loans, 78% have been made to entities “exhibiting speculative-grade credit characteristics,” Booker noted in her report accompanying the outlook revision.
Despite the threat of a default, the authority plans to enter the market with two or three bond sales this year, Leslie said. He said the authority is fairly confident Myers will not default on its loans.
“Their payments are current, and we expect that their February-March-April payment will be made without dipping into the reserve,” he said, adding that the payment depends on an expected infusion of federal funds. “Our hope is we can find a solution between now and end of semester.”
A Cuyahoga County judge last month took over the university — whose alumni include John D. Rockefeller and actor Harvey Fierstein — as it was facing imminent closure and appointed a special master to oversee daily operations.
The judge recently publicly criticized the state’s chancellor of higher education after the chancellor — supported by Gov. Ted Strickland — refused to endorse a plan that would have infused $800,000 in public funds to save the university.
The university is now likely to be acquired by an existing northeast Ohio school or a private equity firm.
