DALLAS – Michigan's Wayne State University expects to return to the bond market to raise up to $14 million for the new business school for which it broke ground last month, a project the Detroit-based school sees as a positive as it works to rein in losses and stave off further credit erosion.
Earlier this month, Moody's Investor Service lowered its outlook to negative from stable on $101 million of bonds refinanced in June and more than $400 million in total debt. The rating agency affirmed the public university's Aa3 rating. Earlier this summer, S&P Global Ratings downgraded the university to A-plus from AA-minus.
The actions were driven in part by pressures from steady enrollment declines. Over six years Wayne State's enrollment fell more than 10%, from 30,510 in 2009 to 27,222 in 2015. The university has also suffered as state funding for capital was nearly eliminated in fiscal 2012 cuts, leaving universities to issue their own debt and resources to fund projects. Wayne State has over the last several years dipped into fund reserves to renovate and rehabilitate classrooms and class laboratories, hurting its level of net assets.
To help offset losses, the university has cut faculty at its school of medicine, according to published reports this week. The cuts, estimated at more than 40 for the year, will help reduce $1.5 million in monthly losses, according to the Detroit News. Last year, the medical school reported a $32 million combined deficit. The university has depleted some cash reserves on construction projects and subsidies to offset budget deficits in the medical school.
The university received a big boost in a $35 million gift from Mike and Marian Ilitch to fund construction of the new business school facility in Detroit. The university said it's also considering borrowing $14 million to help with construction costs. The university officially broke ground on the Mike Ilitch School of Business on July 20 and is already anticipating spending more than the budgeted $50 million for the building.
Bill Decatur, Wayne State's vice president for finance and business operations, treasurer and chief financial officer, said the price tag on the new school has increased to $59 million primarily because of the escalating costs of construction. "There is so much construction going on its squeezing supplies and labor costs," said Decatur.
Decatur said that the $35 million gift is the anchor for the construction of the new building. The university funding plan relies on an additional $10 million in donations, a goal which Decatur said has nearly been achieved.
The rest of the financing will come from bonds that are backed by tuition and other fees that the university collects.
"From the outset of this the plan has always been to issue bonds for whatever the balance is," said Decatur. "We won't issue bonds until we need to from a cashflow standpoint," he said.
Decatur, who said that the recent S&P and Moody's outlook downgrade isn't related to the construction of the new business school, has been at the university for a year. In that time, the university has begun to reverse the enrollment trend. Further enrollment trends for the school of business show an increase of 85% over the last two years.
"The school of business has nothing to do with [the downgrade] in fact given the enrollment growth it's a real positive," said Decatur.
The building will be located on southwest corner of Woodward Avenue and Temple Street in Detroit, just north of another multiuse, multibillion dollar enhancement sponsored by the Ilitch family.
That project includes a new, partially bond financed $650 million hockey arena for the Detroit Red Wings. The team is owned by the Ilitch family, which also owns the Detroit Tigers baseball team and the Little Caesars pizza chain. The arena is scheduled to be completed by fall of 2017.