Fitch Assigns 'AA-' to Wayne State University, MI

Business Wire, Nov 12, 2003

Business Editors

NEW YORK--(BUSINESS WIRE)--Nov. 12, 2003

Fitch Ratings assigns a 'AA-' rating to the Board of Governors of Wayne State University (WSU) $51 million general revenue bonds, series 2003A select auction variable rate securities (SAVRS) and Board of Governors of Wayne State University (WSU) $5 million general revenue bonds, series 2003B (Taxable). In addition, Fitch affirms the 'AA-' rating on the university's outstanding $201 million series 1993, 1999, 2001 and 2002 bonds. The bonds are expected to be sold the week of Dec. 1, through negotiation by Lehman Brothers. The Rating Outlook is Stable.

The tax-exempt bond proceeds will be used to finance the construction and renovation of research labs (approx. $43 million); renovations of a building WSU recently acquired and for the renovation of laboratory space leased within the Detroit Medical Centers. The taxable bonds will be used to finance the renovation of space leased within the DMC that is to be used by the National Institutes of Health. The bonds are expected to be insured. Bondholders do not have a put option.

The 'AA-' rating is primarily attributable to WSU's low debt burden, significant level of state support and increasing enrollment. With the issuance of the series 2003 bonds, the amount of bonds outstanding will have increased by 66% during the past 15 months to slightly over $250 million. In addition, WSU expects to issue an additional $60 million of debt in the next year for a residence hall and renovations. Maximum annual debt service, including the issuance of the series 2003 bonds, would represent a modest use of 2.8% of fiscal 2002 unrestricted revenues. Fitch views the debt burden as manageable.

A capital campaign to be announced publicly next year is expected to provide aid for future facility and operating needs. An increased effort on fundraising comes as WSU has experienced reduced funding from the state. State appropriations represented 39% of fiscal 2002 unrestricted revenues. During fiscal 2003, state appropriations were reduced by 3.5% or $8.9 million.

Additional reductions of 6.7% or $16.5 million are reflected in the current budget. To date, WSU has handled the reduced funding through non-academic staff hiring freezes and staff reductions, tuition increases and increased receipts of funds through indirect cost recovery associated with research grants. WSU has been able to increase tuition and fees without a negative impact on enrollment.

Enrollment growth over the past few years reflects the school's efforts to recruit students that are the first in their family to go to college as well as expansion of the school's honors program. The diverse program offerings coupled with WSU's competitive tuition have also contributed to enrollment growth. Although WSU raised undergraduate tuition by 9.9% for fall 2003 to $5,609 to offset a reduction in state funding, its tuition remains below the state average of $5,895.

The most significant areas of concern center on the uncertainty of future reductions in state appropriations and on the concentration of the student body. Any future reductions in state appropriations would likely have a direct impact on academic programs. A reduction in academic faculty would result in larger class sizes and a reduced number of classes. These reductions would occur at the time that both Congress and WSU are seeking ways of increasing student retention and graduation rates.

WSU's is a public university with its main campus in Detroit, Michigan. Fall 2003 headcount is 33,091, which is a 6.2% increase over fall 2002. The student draw is very concentrated. Approximately 77% of the University's students are from the Detroit area, and 84% are from Michigan. While the city of Detroit's long-term population losses, as well as significant drop-out rates and charter school enrollment losses, have been a concern for the city's school district, WSU enrollment has grown over the past five years by 6.7%. WSU accepts approximately 68% of the freshmen students that apply. The geographical concentration is partially mitigated by the fact that the number of freshmen that actually matriculate is impressive at 50%. The ability of WSU to achieve stable enrollment is a critical factor in maintaining the rating.