Moody’s downgrades Tech rating

HOUGHTON – A ratings agency has downgraded Michigan Technological University’s bond rating, but improved its outlook, a few weeks after announcing a stable rating with a negative outlook.

The mixed bag of results, and Tech’s reaction to those results, was discussed during a presentation by Dave Reed, Tech vice president for research, to the University Senate Wednesday night.

On Tuesday, Moody’s Investors Service announced a downgraded A1 rating to Tech’s $13.36 million general revenue and refunding bonds, series 2013A, which will be issued by Tech’s Board of Control. The rating on outstanding bonds has also been reduced to A1 from Aa3. The outlook, though, was revised from “negative” to “stable.”

“In talking to (Chief Financial Officer) Dan (Greenlee), who talked to the brokers who handle our bond issue, the lower rating coupled with the better outlook really, he said, would have a negligible impact on the university,” Reed told the senators.

Tech’s 2013A bonds are refinancing portions of bonds issued in 2006 and 2008, taking advantage of a lower interest rate, but extending payments out farther.

Some of the reasons for the reduced rating, according to Moody’s, is a sizable cut in state appropriations, a smaller balance sheet compared to peer institutions and low cash liquidity.

“While we are not happy about the move from Aa3 to A1, the move from a negative to stable outlook is encouraging, given the large – 15 percent appropriations cut from the State in 2011-12,” Greenlee said in an email to the Daily Mining Gazette.

According to Reed, Tech did not react the same way as several other state universities to the state’s previously declining position. Instead of, for example, across-the-board cuts, Tech reduced staff numbers through attrition. It led to dipping into the fund balance last year, but this year’s budget, which will be announced at the May board of control meeting, is expected to be balanced.

“We approached it differently in a way that I’m convinced was better for the institution, but may not have met the expectations of the ratings agency when they were putting their outlook together,” Reed said. “We’re addressing the issues, getting the budget in line. … Their outlook was (initially) negative, our outlook was not. … I can see from their perspective why they were.”

On the positive side, though, according to Moody’s, Tech has diverse undergraduate programs in a niche area (science, technology, engineering, mathematics), a diverse revenue base (less reliance on state appropriations) and is now in an improving state financial environment.

Full details on Tech’s bond issues and its $76.75 million in outstanding bond debt can be found linked with Reed’s presentation documents on the Senate website:

In other business during his presentation Reed discussed:

– an international student surcharge, which will likely be introduced soon to help the university with costs associated with international students. A meeting was held with several student government representatives, and at Wednesday’s meeting, Graduate Student Government liaison Ali Mirchi said it “caught students off guard” as an “unpleasant surprise,” and it would be “a big blow to morale.”

The proposed amount was $250, but discussions led to the possibility of reducing it to $75 for current students and $100 for incoming students.

“We’re trying to find some median between what we should surcharge to recover our costs and what is reasonable for the students to contribute,” Tech Provost Max Seel said at Wednesday’s meeting.

– plateau tuition, which will be introduced this fall. Upper and lower division tuition rates could be discussed in the future for the first two years versus the last two years of a program.

– a likely boost to financial aid as part of the 2013-14 fiscal year budget, which is expected to be approved at the May 3 board of control meeting.