Michigan State sheds a negative outlook ahead of deal

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Michigan State University shed a negative rating outlook ahead of a $150 million deal pricing Tuesday to refund bonds sold in 2010.

Ahead of the tax-exempt deal, Moody’s Investors Service affirmed its Aa2 rating of Michigan State and revised its outlook to stable.


Moody's cited the resolution of claims through a $500 million legal settlement for the Larry Nassar sexual abuse cases without a material impact on its balance sheet, along with its healthy student market and fundraising.

Nassar, a team doctor for the university, sexually abused student-athlete gymnasts. Officials at the university and USA Gymnastics, which also employed Nassar, came under fire for letting it happen over many years.

In May 2018, MSU reached a settlement with more than 300 girls and young women who sued the university last year for failing to act against Nassar for sexually abusing them. Nassar was sentenced in January to between 40 and 175 years in state prison after pleading guilty to counts of criminal sexual conduct.

“The majority of outstanding investigations and inquiries against the university have concluded with limited financial impact to Michigan State,” Moody’s said.

“The university also has significant financial reserves and diverse revenue streams partially mitigating financial risk from future additional claims,” the rating agency wrote.

“We’re pleased with the results of the upgrade from Moody’s, and the recognition of our strong student enrollment and fundraising activities of the past year,” MSU spokesperson Emily Guerrant said.

Guerrant said that the university has estimated that the upcoming refunding will create a savings of about $1 million per year. “It will help lessen the burden of the increased debt service from the Nassar lawsuit settlement bonds,” she said.

S&P Global Ratings rated the bonds AA, with a negative outlook. The university has roughly $1.7 billion in general revenue bonds outstanding.

RBC Capital Markets and JP Morgan are co-senior managers. Miller Canfield PLC is bond counsel. Blue Rose Capital Advisors is advising the university.

In February, the university sold $323 million of taxable bonds to refund part of a $500 million private placement issued for the settlements. Bank of America Merrill Lynch and Citi underwrote the deal.

The bonds included proceeds for a $75 million litigation reserve fund the university has used to settle or litigate lawsuits not released by the settlement. According to bond documents, the university has roughly $2.3 million remaining in the fund.

“The outcome of pending litigation by additional plaintiffs is not determinable at this time nor is the university able to determine whether the litigation reserve will be sufficient to pay the costs of defending and or settle all of such claims,” bond documents stated. “Additional claims could potentially be asserted by other individuals in the future however.”

MSU said that an additional 205 claims have been filed or asserted as of Nov. 14, 2019 — of these 139 have been settled in principle for roughly $66.7 million from the litigation reserve fund. MSU has spent its allocation of 8% or $6 million from the reserve fund toward legal expenses.

MSU is in mediation with insurance companies that provided liability policies during the two decades of Nassar’s employment with the university. The university in July 2018 filed a lawsuit in Ingham County Circuit Court against its insurers to try and offset costs tied to the Nassar settlement case. The lawsuit is on hold until the conclusion of mediation, according to bond documents.

The university said that to date none of the more than $300 million in liability insurance coverage has been paid by its insurance carriers.

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Lawsuits Refunding bonds Higher education bonds Michigan
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