LSU stopped nearly $115 million in planned borrowing today as investors pulled out of the deal amid concerns over the university’s financial instability. The university cited “continued unpredictability of our state budget” in its announcement.
“This is obviously not a welcome development,” Treasurer John Kennedy says in a prepared statement. “It could have ramifications for other universities in Louisiana and for the state’s overall bond rating, and it could impact the interest rate on future state bond issues.”
As The Associated Press reports, the sale of bonds for upfront cash had been underway to refinance existing debt to save the university money, pay for new and renovated student housing, and expand the student health center on the Baton Rouge campus, according to state financial documents.
But after new worries surfaced this week about the university’s credit rating and the threat of a bankruptcy filing, national investors backed out of much of the deal before the closing, Kennedy says. The university then scrapped the bond sale.
“We believe this is the responsible thing to do, and we will re-evaluate the offering once the state’s financial picture becomes clearer,” LSU says in a statement.
As the state grapples with a $1.6 billion shortfall, public colleges are threatened with deep cuts topping $600 million, up to 80% of their state financing, in the budget year that begins July 1. Gov. Bobby Jindal has proposed tax changes and other ideas to raise money to close some of the gap, but no agreement has been reached with lawmakers.
Any cuts would fall on top of years of budget slashing across campuses.
LSU System President F. King Alexander announced Wednesday that the system’s campuses, including the flagship campus in Baton Rouge, were readying paperwork to file for “financial exigency,” the equivalent of bankruptcy, in case cuts were so deep that exigency was needed.
But today, the university stressed that it hasn’t started filing for exigency.
“President Alexander has not formally requested, nor has the LSU Board of Supervisors voted, to declare financial exigency. However, we are working together on a wide range of contingency plans in preparation for the final outcome of the budget process,” Ann Duplessis, chair of the board, says in a statement.
But the possibility could have been enough to spook investors. Earlier this week, national credit rating agency Moody’s Investors Services dropped LSU’s credit outlook from positive to stable, raising concerns that Moody’s could lower the university’s credit rating if it gets hit with hefty budget cuts. A rating downgrade would cost LSU more to borrow money.
Duplessis says university leaders “remain optimistic that the Legislature’s concern for higher education will result in solutions that will protect LSU.”