Still growing, University of Utah sets bond deal for campus expansion

The University of Utah is reopening classrooms for the spring 2021 semester.

U. of Utah

Amid a challenging environment for higher education, the University of Utah is diving into 2021 with $172 million of taxable and tax-exempt bonds.

The university is planning to price the new money and refunding debt Jan. 21 through negotiation with book-runner JPMorgan with Wells Fargo as co-manager.

Stifel Nicolaus & Co. is financial advisor.

The bonds are coming in three tranches. Series A-1 is $86.9 million of tax-exempt new money bonds maturing 2024 through 2041. Series A-2, also tax-exempt new money, is $7.7 million maturing in the same years. Series B is $77 million of taxable refunding bonds. The bonds to be refunded were issued in 2014, 2015, and 2016.

All the bonds are rated Aa1 by Moody’s Investors Service and AA-plus by S&P Global Ratings. Outlooks are stable.

“The university continues to work through the coronavirus pandemic from a position of financial strength, with strong fundraising, favorable cash flow and healthy state support,” said Moody’s analyst Michael Osborn.

“The university also benefits from its profitable healthcare enterprise and position as the sole academic medical center in the state,” he added. “Tight integration of the university and medical center, including strong management coordination and cross-pollination of board members, adds cohesion and strength to the consolidated operating entity.”

The university’s challenges include substantial exposure to the volatile healthcare industry and stiff competition for students, analysts said.

“We assessed the University of Utah’s enterprise profile as extremely strong, characterized by its impressive management team, solid market position and demand, and exposure to health care industry risk,” said S&P Global Ratings credit analyst Mary Ellen Wriedt. “We assessed the university’s financial profile as very strong, with solid financial policies, robust operating margins and available resources, and average debt for the rating.”

The university will have about $1.5 billion of outstanding bond debt with this issue, according to S&P, most of it in the form of general revenue bonds.

Pledged revenues are all legally available income and revenues of the university. For fiscal 2020, net general revenue pledged for debt service came to about $650 million.

With its main campus in Salt Lake City, the University of Utah is the flagship university in the state with an enrollment base of nearly 29,000 full time equivalent students and total operating revenue of nearly $5.8 billion.

While some universities have seen enrollment losses during the COVID-19 pandemic, the University of Utah has continued to add both undergraduate and graduate students.

The university also has growing research activity and serves as the state’s sole academic medical center.

The 514-bed University Hospital serves as clinical training site for the university’s medical students. The university also operates the 100-bed Huntsman Cancer Hospital, the 161-bed University Neuropsychiatric Institute, the Moran Eye Center, 13 community-based clinics, and the University Orthopedic Center.

Proceeds of the Series 2021A-1 bonds will finance construction of the Health Sciences office building project. The Series 2021A-2 bonds will be used for various campus construction.

The new office building will be known as the Healthcare, Educators, Leaders & Innovators Complex, or HELIX for short.

On Jan. 12, university president Ruth Watkins announced she will be stepping down after three years.

In her resignation letter, Watkins, the first woman to serve as the university’s president, highlighted the university’s graduation rates during her tenure.

The Utah Board of Higher Education will begin a national search for a new president, according to a prepared statement.

On Thursday, the U.S. Education Department provided $21.2 billion in help to higher education included in the coronavirus relief legislation Congress and President Trump approved in December.

The same day, President-elect Joe Biden released a summary of the $1.9 trillion relief package he is planning to propose upon taking office, including another $35 billion in help for colleges and universities.

“The president-elect’s plan will ensure colleges have critical resources to implement public health protocols, execute distance learning plans, and provide emergency grants to students in need,” according to a prepared statement. “This $35 billion in funding will be directed to public institutions, including community colleges, as well as public and private Historically Black Colleges and Universities and other minority-serving Institutions,” said the document marked “confidential.”

This summary said also that the proposal “will provide millions of students up to an additional $1,700 in financial assistance from their college.”

The latest round of approved coronavirus relief allows more flexibility on how colleges and universities can spend the money than in last spring’s CARES Act.

Higher education enrollments declined 2.5% in fall 2020, nearly twice the rate of enrollment decline reported in fall 2019, according to a December report from the National Student Clearinghouse Research Center. Undergraduate enrollment fell 3.6% or over 560,200 students from 2019 while graduate enrollment saw a slight increase.

“The first-time student enrollment decline of 13.1% (or over 327,500 students) over last fall is unprecedented,” the report said. “Sharp declines at public two-year institutions (over 207,200 students, 21% decrease) contributed the most to the decline, falling at a rate almost 20 times higher than the prior year’s decline (pre- pandemic).”

On March 19, the University of Utah shifted to virtual instruction, using an already established online learning platform. The university campus remained open for students who could not return home and for essential services, including critical research activities. Most faculty and staff transitioned to remote work.

During fall 2020 and spring 2021, a majority of classes are being delivered online, with the exception of experiential learning courses including fine arts, laboratories, and clinical rotations.

Total fall 2020 headcount enrollment increased by 0.7% to 33,081, and full-time-equivalent enrollment increased by 2.1% to 28,746. To ease financial stress, tuition was held flat for the fall 2020 semester, while housing and dining costs decreased. The university raised tuition 2% tuition for its spring 2021 semester. Overall, in-state students increased to 68% of enrollment from 64% in the previous year, S&P noted.

“The main impact of the pandemic has been a loss of revenue, primarily from a decline in clinical revenue at UUHC, as well as revenue loss from pro rata refunds on room and board for students no longer residing on campus,” Wriedt said.

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