Fitch Cuts Texas Southern University's Rating to Junk

DALLAS — Texas Southern University’s revenue financing system bonds have fallen below investment grade on the Fitch Ratings scale. The agency downgraded $99 million of outstanding bonds to BB-plus with a negative outlook from BBB.

The junk bond rating “reflects the impact that TSU’s historically lax governance and management structure has had on its credit profile,” analysts wrote.

“Although a new management team has recently been installed, TSU’s financial metrics have weakened materially over the past several years, with student demand, measured by both enrollment and applications, badly damaged by the loss of its Southern Association of Colleges and Universities accreditation in fiscal 2007, and its high cost of attendance compared to other public universities within the state,” Fitch analysts wrote.

In February, Moody’s Investors Service affirmed TSU’s Ba3 rating with a developing outlook. Standard & Poor’s does not rate the debt.

The outstanding debt was issued by the Texas Public Finance Authority on behalf of the university. The bonds are secured by a pledge of all legally available revenues and funds balances of TSU, excluding state-appropriated funds and restricted funds.

“The negative outlook indicates that additional negative rating action could be taken should the new management team fail to rebuild financial integrity, stabilize financial performance, and rebuild enrollment,” Fitch wrote.

TSU lost its accreditation in 2007 after Texas Gov. Rick Perry removed the school’s board in the wake of a financial scandal involving president Priscilla Slade. TSU’s fall 2008 enrollment fell 24% to 7,820 students.

Slade was indicted for misuse of $650,000 in university funds for personal expenses. Although the TSU chief financial officer Quentin Wiggins was sentenced to 10 years in prison, Slade’s case ended in a mistrial, followed by a plea bargain. Under the deal, she agreed to 10 years of deferred adjudication, to repay $127,672.18 to the school, and to serve 400 hours of community service.

In addition to the outstanding revenue financing system bonds, the university’s total $220 million of long-term debt includes off-balance-sheet financings for parking and student housing of $58.2 million, litigation liabilities of $23.2 million, capital leases, and notes payable.

“As management addresses the university’s deferred maintenance and revitalizes TSU’s facilities and campus services, Fitch expects TSU to balance the financing of its capital needs with available resources, including those provided by the state,” analysts wrote.

Established in 1947, TSU is a public four-year liberal arts institution and one of the nation’s largest Historically Black Colleges and Universities. TSU’s 145-acre campus is three miles from downtown Houston.

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