Another private school in New England is issuing too much debt for the liking of Moody'sInvestors Service.
Wesleyan University, one of the nation's most selective liberal arts colleges, has beendowngraded by the rating agency to Aa3 from Aa2 as it prepares to issue $62 million ofauction-rate securities through the Connecticut Health and Educational FacilitiesAuthority. The new rating affects $171 million of outstanding debt and is assigned astable outlook.
This spring, Williams College and Deerfield Academy, both elite private institutions inMassachusetts, lost their coveted Aaa rating from Moody's after taking on new debt andincreasing the leverage in their debt portfolios.
Moody's analysts again cited increased leverage as the reason for the most recentdowngrade.
"The current offering will increase debt levels by 100% since 1999, while totalfinancial resources have declined by 17% over the same period," said Moody's MariannaPisano. "Wesleyan has historically lagged behind its peers in balance sheet growthlargely because its fundraising has not been maximized."
But school officials seem unconcerned about the downgrade. This issue represents thesecond in a string of three bond issues planned to enhance the school's capitalfacilities.
"We have a strategic plan and our facilities are a very important part of that," saidTom Kannam, director of investments for the university.
Standard & Poor's rates Wesleyan AA-plus and has not yet released a rating on theupcoming deal. Fitch Ratings does not rate the credit.
The auction-rate securities will be swapped to a synthetic fixed rate of 4.05% under acontract negotiated earlier this year with Lehman Brothers, who is also underwriting thedeal. The first portion of the school's capital improvement plan, $93 million ofvariable-rate demand bonds issued in 2001, was also swapped to a synthetic fixed ratewith Lehman as the counter-party.
The ability to lock in a low synthetic rate prompted the swap, according to Kannam.
Shipman & Goodwin LLP is serving as bond counsel.
The proceeds from the upcoming issue will be used for various capital projects includingathletic and academic facilities and student housing. The school expects to finish thecurrent capital plan by borrowing an additional $25 million to $35 million of new moneyover the next several years to build a university center.
Moody's said the university's credit has a stable outlook because of its excellentstudent market position. "While we expect the college to remain leveraged in the nearterm, fundraising and more positive investment returns will begin to help grow thebalance sheet," Pisano said.
The school has already reached $210 million of a $250 million fundraising campaign goalset to finish up next year. "We've hit every milestone for the campaign so far, even ina bear market," Kannam said.
