BRADENTON, Fla. — Standard & Poor's downgraded bonds issued for West Virginia University A from A-plus citing deteriorating financial ratios because of bond issuances in recent years.
The downgrade affects $521.3 million of debt outstanding as of June 30. West Virginia University Board of Governors issued the bonds for the state university.
The bonds were downgraded Aug. 29 in conjunction with WVU's upcoming issuance of $190.25 million of new and refunding bonds. S&P assigned an A rating to the deal.
"The downgrade to A reflects our view of a deterioration in the university's financial resource ratios due to debt issuances that have occurred since fiscal 2011," said S&P analyst Shivani Singh. "These debt issuances have more than doubled WVU's debt load relative to fiscal 2008."
The university's slim financial resource ratios are more consistent with other A-rated institutions, Singh said.
In 2011 and 2012, the university issued a total of $518 million bonds.
After the 2014 bonds are issued, WVU's pro forma debt will be $792.7 million, including bonds, capital leases, notes payable, advances from the federal government, other long-term liabilities, and college system debt owed to the West Virginia Higher Education Policy Commission, according to S&P.
Narvel Weese, vice president of administration and finance at WVU, pointed out that Moody's Investors Service on Aug. 15 affirmed the university's Aa3 rating and stable outlook ahead of the upcoming transaction.
"WVU's diverse revenues supporting balanced operating performance, strong student demand, philanthropic support, and increasing cash and investments demonstrate the University's overall credit worthiness," Weese said. "West Virginia University's financial ratios have not changed significantly since S&P affirmed our rating in 2011 and again in 2013."
Factors supporting the new rating are WVU's status as the state's flagship institution, diverse programs, a stable enrollment base that includes 32,595 students in 2013, and a large $595.2 million endowment with a new fund-raising campaign under way, S&P said.
The credit strengths are partially offset by WVU's low and weakened financial resource ratios primarily due to debt issuances, and large full-accrual operating deficits since fiscal 2010 mostly due to relatively large other post-employment benefits expense accruals, said Singh.
Other factors include increased depreciation expense associated with the university's capital projects, additional amortization expense associated with software donations, and a fiscal 2014 decrease in state appropriations that is anticipated to continue in fiscal 2015.
WVU also faces long-term enrollment pressure from projections that indicate the number of in-state graduating high school seniors will decline.
The university has experienced "several unusual and non-recurring events that had a significant impact on its financial statements," according to the 2013 audit. Those events included a change in athletic conferences that required the university to pay a $20 million exit fee, and receipt of a $71.2 million donation of software.
The university's main campus is in Morgantown.
