A university in Ohio looks long-term as it restructures its debt portfolio

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The University of Findlay, a private not-for-profit liberal arts school in Ohio, is pricing $40 million in low investment grade bonds Wednesday to restructure its current capital debt structure for both savings and to shed some future financing risks.

“Our current capital debt structure is very biased toward short tenor note, very biased toward variable interest rate and very biased toward having a relationship with one financial institution," said the school's chief financial officer and treasurer, Thomas Lause. "We want to develop a much more balanced capital structure for the university that mitigates that risk, renewal risk and interest rate risk. It is very logical to do a bond to get long-term fixed rate very secured finance for the university.”


Proceeds of the deal selling through the state of Ohio will fully refund the university's existing debt, moving all of it into a traditional fixed-rate structure and will establish a bond reserve fund.

Findlay has $44.6 million of debt outstanding that consists of multiple series of three capital lease obligations, six short-term notes payable, and six series of bonds.

“We believe the new debt structure will eliminate risk, and ultimately place the university in a better strategic position relative to its financial goals” S&P Global Ratings said. “After the series 2019 issuance, the university will have no contingent liability risk exposures from financial instruments with payment provisions that change upon the occurrence of certain events.”

Findlay received a first time BBB-minus rating from S&P ahead of the sale. The outlook is stable. KeyBanc Capital Markets Inc. is the senior manager and PNC Capital Markets LLC is co-manager. Squire Patton Boggs is bond counsel.

Tim Kelly, director of public finance banking at KeyBanc, said the refinancing also impacts annual debt service for the university.

“The annual debt service on the current debt structure was between $4 million to about $5 million now that is shaved down to about $3 million going forward,” Kelly said. "Even with the debt structure of the past the university has a proven track record of meeting all of their debt service obligations and debt service payments so this refinancing is only going to help them and provides more flexibility.”

Smaller and mid-tier private and public colleges and universities have struggled amid competition and rising costs, leading some to cancel programs and even shut their doors.

Findlay hasn’t been immune to enrollment struggles. The university's enrollment was 3,809 students in fall 2018, down from 4,160 students in the fall of 2014, a drop of about 7%. About 75% of students are from Ohio, with the remainder from out of state. Similar to most private colleges of its size, University of Findlay is highly dependent on student-generated fees; tuition, fees, and auxiliary revenue generated 84% of fiscal 2018 adjusted revenue.

Lause said that the university is targeting growth in its enrollment. “The vast majority of our softness in enrollment was driven specifically by decrease in international students,” Lause said. “The bad news is that we have seen a decline, the good news is that we can’t really get much lower so we are starting to rebuild with a more diversified approach.”

Lause said that the university has seen a “meaningful reduction” in its cost structure to make up for the loss in tuition revenue. “We are still executing some of those but when they are completed we would have made a very meaningful step change in our cost structure to better align our cost structure with our current enrollment,” Lause said.

Despite enrollment pressures the university has achieved consistently positive operating results over the last four fiscal years. Fiscal 2018 ended with a $4.9 million operating surplus, improved from a fiscal 2017 operating surplus of $697,000.

“We attribute the overall operating success of the university in the last several years to careful expense management and to a commitment to cost control,” S&P said but warned that if the university is unsuccessful in bucking the enrollment decline it would likely face thinner margins that could pressure the rating over time.

Findlay offers 62 bachelor's degree programs, 11 master's degree programs, and four doctoral programs across its six colleges. It largely serves the geographic region, with 75% of students coming from Ohio as of fall 2018.

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