Rating agencies affirm CSU’s bond ratings, S&P changes outlook to ‘negative’

FORT COLLINS – As the Colorado State University System prepares to issue $220 million in bonds to build a new football stadium, rating agencies maintained the system’s underlying bond ratings, although Standard & Poor’s revised CSU’s bond outlook to “negative.”

Moody’s Investors Service earlier this month affirmed the System’s “Aa3” rating, and S&P continued its “A+” rating for CSU System debt. CSU also maintained a Moody’s rating of “Aa2” and an Standard & Poor’s rating of “AA-“ for bonds issued with the backing of the Colorado State Intercept Program.

Standard & Poor’s revised CSU’s credit outlook to “negative” from stable, warning that borrowing could “exert greater pressure on financial resources.”

“The negative outlook on the underlying bond rating reflects our opinion of CSU’s significant increase in borrowing during the past few years, which has caused dilution in financial resources compared to debt, and has elevated the university’s debt burden,” Standard & Poor’s credit analyst Jessica Wood said in a statement issued Tuesday.

“Additionally, the system has plans to issue an additional $160 million in debt during fiscal 2015, which will exert greater pressure on financial resources that we already view as very weak for the rating,” she added.

Additionally, both ratings firms cautioned that CSU faces a bond rating downgrade in the future if it fails to meet certain financial objectives.

Moody’s said weakening operating cash flow as the university absorbs rising debt service costs; substantial decline in liquidity; and significant additional leverage, given substantial recent growth in debt levels, could lead to a downgrade.

Moody’s added that CSU’s inability to meet original fundraising targets for the stadium as well as potential cost overruns requiring additional borrowing or use of reserves, or failure to meet revenue projections, could pressure its rating.

The stadium and other financed projects are expected to generate additional revenue, though Moody’s incorporated projections that they may fall “moderately short.” However, CSU’s ability to achieve positive financial performance and enrollment gains while facing state funding cuts through fiscal 2013 “highlights its long-term financial strength.”

“A 13 percent increase in enrollment over the past five years has contributed to ongoing revenue growth and balanced operating performance at the same time as the system has achieved momentum in philanthropic support,” reads the rating action.

Moody’s ultimately offered a stable outlook for that rating based on an expectation that the university will successfully manage the construction risk of the multiple projects and that the university leadership will provide sustained, balanced operating performance.

The CSU system’s bond ratings indicate confidence in CSU leadership and the institution’s financial health, according to CSU. After CSU issues bonds to finance the stadium, the university will issue another round of bonds totaling about $160 million to build a new medical center, biology building, parking structure, a parking lot and the relocation of the Plant Environmental Research Center.

When issuing bonds, institutions such as CSU can participate in the intercept program to use the state’s credit rating to secure more favorable terms as well as financial backing from the state if an institution fails to make debt service payments. CSU, however, will not use state intercept-backed bonds for the stadium project.