Kent State University is pricing $195 million of bonds on Wednesday of which a portion will be used to fund the first parking deck at the school.
The Northeast Ohio university plans to sell $23 million of tax-exempt, new-money bonds to finance the project that is part of its $1 billion main campus renovation. The university is also pricing $172 million of federally taxable bonds that will advance refund bond issued in 2012 and 2014 for a savings.
The parking deck is part of the university’s first phase of its 10-year Gateway Master Plan. The capital improvement program consists of new construction and renovation of existing facilities that will be executed over three phases.
Capital improvement projects included in the first phase have an estimated cost of roughly $141.5 million are expected to be funded from gifts, state appropriations financing and university funds, the university said in an investor presentation.
"The parking deck is an integral part of the front campus renovation and new signature entrance to our campus from Main Street,” Kent State President Todd Diacon said. “The result will be a picturesque entrance that will help improve pedestrian safety, connect walkways and provide additional parking spaces that have long been sought by faculty and students, including commuter students.”
JP Morgan and KeyBanc Capital Markets are co-senior managers. PNC Capital Markets LLC and Loop Capital Markets are co-managers. PFM is the advising the university. Squire Patton Boggs is bond counsel.
Ahead of the sale, S&P Global Ratings affirmed its A-plus ratings on the bonds and Moody’s Investors Service affirmed it Aa3 ratings. Their outlook is stable. Kent State has roughly $357 million of general receipts bonds.
General receipts bonds are special obligations of the university that are secured by a first lien on general receipts, which exclude state appropriations and donor-restricted gifts.
Kent State University, like other universities in the region, faces significant market challenges, reflected in declining enrollment and net tuition revenue, its largest revenue source, resulting in thinner operating performance than in the past.
The university has witnessed significant international enrollment challenges, with international full-time enrolled students down by roughly 50% since fall 2015, according to Moody’s. Total enrollment has trended downward in recent years, to 30,631 students in fall 2019 from 32,482 students in fall 2015.
Still, the university’s operating performance and debt service coverage improved in fiscal 2019 primarily due to expense reductions. The university generated $638 million of revenue in fiscal 2019 and, combined with its foundation, had cash and investment totaling over $688 million.
Expenses in fiscal 2019 were down 3% due to a continued focus on salary and benefit expense containment, as well as a recently implemented zero-based budget process. The university implemented a university-wide 5% budget reduction for administrative purposes, a voluntary employee separation plan, and a hiring freeze in September 2019
“Current credit quality relies heavily on management's ability to continue improving operating performance and adjust expenses to low expected revenue growth,” Moody’s said.
“The stable outlook reflects our view that KSU will successfully navigate enrollment pressures over the next two years as it implements a new enrollment strategy under the guidance of the new vice president for enrollment management,” S&P said. “We expect that operating results will improve as the university continues to enact cost-saving and revenue-generating measures. We expect relative stability in available resources and expect that KSU's state appropriation will not decline and that it will continue to receive occasional state-funded capital support.”
