Western Michigan University will sell $94 million of tax-exempt and taxable bonds next week to refund debt and finance new student housing and dining facilities and a new bookstore.
The projects are part of the plan by the university to revamp its image and reverse a decline in enrollment. Over the last four years the Kalamazoo-based public university, similar to other schools in the state, has experienced a nearly 9% drop in enrollment.
The university is pricing $79 million of tax-exempt new money and refunding bonds. A $13.3 million portion of the deal will refund the university’s callable 2009 General Revenue Refunding Bonds for interest savings, according to the investor presentation. WMU is also pricing $15 million of taxable bonds to fund improvements for projects which have private use.
The new money bonds will be used to help fund the construction of a new student housing complex called Arcadia Flats and a new student center. WMU said the projects should help strengthen its recruitment and retention efforts.
The student housing project is a six-story 197-unit residential facility that will house up to 353 students. That project’s estimated cost is about $64 million. The project should be completed in the summer of 2020 and open for the 2020-21 academic year.
WMU's new student center is expected to cost $92 million and is set to open in two phases.
The first two floors containing most of the student center functions will come online during the fall of 2021 in phase one. Throughout the fall, various units will be moving into the building. Phase two will occur in the fall of 2022 when the dining facility on the third floor opens.
A portion of the proceeds will be used to fund the construction of a $6.5 million bookstore inside the new student center as well as the $9 million renovation of the university’s paper pilot plant.
Bank of America Merrill Lynch is the senior manager. PNC Capital Markets and Siebert Cisneros Shank & Co. are co-managers. PFM Financial Advisors is advising the university. Miller Canfield is bond counsel.
Ahead of the sale, Moody’s Investors Service affirmed its Aa3 rating on the bonds and S&P Global Ratings affirmed its A rating. The university has roughly $351 million in outstanding bonds. The outlook is stable.
S&P said that although the university's track record of strong operating surpluses and healthy available resource ratios through fiscal 2019 are indicative of an A-plus standalone rating, it believes that the A rating better reflects WMU’s weaker demand metric.
“The stable outlook reflects our expectation that WMU will maintain positive operating results on a full-accrual basis, and that ongoing efforts to address enrollment pressures will prevent the university's demand metrics from deteriorating further,” S&P said.
The university said plans to issue another $63 million in bonds next year to complete the construction of the new student center project.
“We believe the university has capacity for the planned debt if it maintains the current balance sheet and demand metrics,” S&P said. “However, it is our opinion that the university is nearing debt capacity, and we anticipate that any additional debt beyond what is planned for 2020 would be met with commensurate growth in available resources.”
WMU is one of 15 public universities in Michigan. Additional branch campuses are in Battle Creek, Benton Harbor-St. Joseph, Grand Rapids, Lansing, Traverse City, and Metro Detroit.
Like many of its peers the university’s tuition revenue has taken a hit from a decline in in-state enrollment primarily driven by a large drop of high school student coming to college.
“The university is highly dependent on in-state students — approximately 79% in fall 2019 — and a declining number of high school graduates within the state will continue to challenge enrollment growth,” Moody’s said. “Inability to curb further enrollment losses and grow net tuition revenue could lead to credit deterioration.”
The most recent drop in the student population of about 1,000 students since 2018 translates into the loss of millions of dollars in tuition revenue. Efforts to reduce expenditures included a less than 1% increase in the university’s total budget between last year and the 2019-20 school year.
