CHICAGO - The Wayne State University Board of Governors plans to enter the market this week with $112 million of fixed-rate bonds to refund outstanding debt and terminate a pair of interest rate swaps.

The transaction comes as WSU and other state-supported universities across Michigan brace for cuts in aid as legislators craft a final 2010 budget.

Under a higher education budget tentatively agreed on last week, the state would cut university operating aid by 0.4%, or $147 million. The cuts would have been higher without an infusion of $67 million in federal stimulus dollars.

Wayne State is a sprawling urban university that operates more than 100 buildings on its main campus in Detroit, near many of the city's cultural attractions and the Detroit Medical Center.

The school draws 90% of its students from Michigan, and 90% of those come from Detroit.

Despite the lingering economic and fiscal problems afflicting Detroit and Michigan, WSU historically has benefited from a relatively strong balance sheet and growing financial resources.

It maintains a conservative debt structure, and after the upcoming transaction its entire $380 million debt portfolio will be in a fixed-rate mode.

Moody's Investors Service rates the upcoming bonds Aa3 with a stable outlook. Standard & Poor's rates the debt AA-minus.

The $112 million bond issue includes $73.9 million of serial bonds maturing through 2024 and $39 million of term bonds maturing in 2029.

Bank of America Merrill Lynch is senior manager on the transaction, with JPMorgan, Loop Capital Markets LLC, and Siebert Brandford Shank & Co. also on the underwriting team. Bond counsel is Miller, Canfield, Paddock and Stone PLC. Sound Capital Management Inc. is financial adviser.

The bonds are secured by Wayne State's general revenue, which includes all revenue sources except state appropriations and other restricted revenue.

The pledged general revenue sources totaled just under $445 million in fiscal 2008, providing debt service coverage of 16.0 times, according to bond documents.

WSU is expected to maintain its role as a major educational and research institution with a relatively strong balance sheet, Moody's said. But analysts warned that regional economic weakness will pressure its two main revenue streams, state aid and student charges.

About 30% of the school's operating revenue comes from state aid, which will likely be cut this year as lawmakers attempt to eliminate a $2.8 billion deficit in the 2010 budget.

Michigan in 2008 gave $239 million in aid to WSU, a figure that has risen steadily over the years and "contributes substantially to the successful maintenance and operation of the university," according to bond documents.

In addition to operating aid, the state has provided about $14 million in capital appropriations over the last five years. The school expects to borrow about $31 million later this year to finance the expansion of a chemistry building, but a larger capital plan that could total $180 million would only advance with substantial state support, according to Moody's.

Wayne State could also see enrollment decline as students choose to attend less expensive community colleges, as high school graduation rates continue to drop in Detroit, or as financial aid becomes less available.

The state Legislature's higher education budget that passed last week eliminated a popular Promise Grant scholarship program that provides students with $4,000 for college tuition over four years, prompting Gov. Jennifer Granholm to say she would veto any budget cutting the program. At the same time, many U.S. automobile makers have cut their tuition reimbursement programs.

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