CHICAGO – The University of Michigan heads into the market this week with $312 million of high-grade revenue paper to fund ongoing capital projects and refund debt.
Morgan Stanley is the senior manager on the deal slated to sell Wednesday, Dec. 2. Bank of America Merrill Lynch and Wells Fargo Securities are co-managers.
Proceeds will finance the university's ongoing capital program and refinance $204 million of variable- rate debt and refinance additional commercial paper notes. General revenues are pledged to debt repayment.
Revenues come from tuition, fees, auxiliary revenues, indirect cost recoveries, hospital gross revenue, patient service revenue, faculty group practice plan revenue, and unrestricted investment income that totaled $5.6 billion in fiscal 2015. General revenues exclude state appropriations.
Ahead of the sale, Moody's Investors Service and Standard & Poor's affirmed the Michigan Board of Regents' Aaa and AAA ratings on $2 billion issued on the university's behalf. The outlook is stable.
"We consider UM's institutional fundamentals--stable enrollment and strong demand, sound balance sheet metrics, exceptional research presence, and a manageable debt burden--consistent with the AAA rating category," said Standard & Poor's analyst Jessica Wood.
The stable outlook reflects analysts' expectation that UM will maintain positive consolidated operating results and sustain its strong liquidity position while also maintaining its exceptional research and student demand profile and its manageable debt burden as its implements an extensive capital plan.
To maintain the rating, the University of Michigan Hospitals and Health Centers are also expected to meet or exceed projections and show steady progress in improving operating margins while maintaining strong debt service coverage and stable unrestricted reserves.
UM is the state's flagship among its 15 public universities. It has an enrollment of more than 61,000 at its main campus in Ann Arbor and two other campuses in Dearborn and Flint.
The university had total operating revenues of $6.9 billion last year with cash and investments of $11.7 billion, an endowment of $10 billion, and $1.3 billion in research spending, treasurer John Sullivan said in an investor presentation.
Moody's said its rating recognizes the university's "consistent ability to translate its international brand into revenue growth and philanthropic support."
"The university's key credit challenge is a high reliance on patient care revenue that is susceptible to regulatory and government payer changes," Moody's added.
The university also carries top short-term ratings supported by its strong liquidity and enjoys diverse revenues streams that come from tuition, patient care, private donations, government grants, state appropriations, and investment income.
The university highlights for investors its increasing state aid, although it accounts for only 5% of operating revenue. The university received $340 million in fiscal 2015 from the state as its economic picture improved. That was up from $322 million a year earlier and $316 million in 2013.