DALLAS — Fitch Ratings Thursday downgraded Baylor University’s fixed-rate revenue bonds as the private school prepares to issue up to $200 million in debt for a new stadium on its Waco, Texas, campus.
The rating was knocked down to A-plus from AA-minus. The outlook is stable. Ratings from Moody’s Investors Service and Standard & Poor’s had not been reported Thursday morning. In a $120 million deal earlier this year, S&P rated Baylor’s bonds AA-minus with a stable outlook.
The Fitch downgrade “reflects a material increase in outstanding debt and associated carrying costs which will pressure the university’s recently reduced operating surpluses and financial cushion,” Fitch analysts Angela Guerrero and Joanne Ferrigan wrote.
Baylor, the largest Southern Baptist-affiliated university in the nation, is building a new football stadium on the north side of the Brazos River that will be connected by a footbridge to the campus. Baylor, a member of the Big 12 Conference, is one of several universities in Texas and the Southwest building or planning bond-financed stadiums.
The new Baylor stadium will replace 62-year-old Floyd Casey Stadium located four miles from campus. Groundbreaking for the new stadium was in August, and completion is expected in time for the 2014 season.
The new Baylor stadium will include $35 million of tax increment financing from the city of Waco, which sees the new facility as a step toward revitalizing its downtown.
“With the final approval of the TIF funds for this project, we are prepared to move forward expeditiously to bring this bold vision to reality, for our university and for our city,” Baylor spokeswoman Lori Fogleman said.
The Fitch downgrade will add to the cost of financing, but how much will not be known until pricing of the tax-exempt bonds the week of Oct. 14.
“The issuance of additional debt totaling $120 million of tax-exempt bonds earlier in 2012 has put pressure on Baylor’s annual operations, driving interest costs up by 23.6% from fiscal 2010 to fiscal 2012, albeit from 2.7% of annual operating expenses in fiscal 2010 to 3.0% in fiscal 2012,” analysts noted.
Operations have narrowed to just above break-even in both fiscal 2011 and 2012, they reported.
“While these issuances have resulted in an overall decline in the university’s financial flexibility, Fitch has considered the university’s conservative, long-term financial planning as a significant mitigating factor to-date,” analysts wrote.
Despite the financial pressures facing colleges and universities, several are planning ambitious stadium projects.
Baylor’s plan to move its football stadium onto the campus is very similar to Colorado State University’s stadium plans. CSU president Tony Frank this week announced his support for building a $250 million on-campus stadium, provided that backers could raise half that amount in voluntary contributions. Unlike Baylor, CSU is a state university.
Texas A&M University is planning a $450 million expansion of Kyle Field.
A&M is known for its football and military cadet programs and joined the Southeastern Conference for athletics this year.
Elsewhere, Arizona State University in Tempe has created a special district to produce revenue for a remodel of its Sun Devil Stadium.
Baylor was chartered by the Republic of Texas on Feb. 1, 1845, and is the oldest continuously operating college in the state. It is also the largest Baptist university in the world, and offers undergraduate and graduate degrees to 15,364 students at its campus in Waco.
