Fitch drops Oklahoma State to AA-minus ahead of $77M deal


Oklahoma State University, whose enrollment fell 17% over the past four years as state financial support has waned, received a one-notch downgrade from Fitch Ratings to AA-minus.

Oklahoma State University in Stillwater is one of two flagships in the Sooner State.


The downgrade comes as OSU prepares for a $77 million bond issue expected to price April 9.

Fitch analyst Susan Carlson cited “multiple years of state operating cuts that have lowered the level of state support for operations and reduced OSU’s balance sheet ratios to levels more appropriate for the AA-minus rating.”

Over the past four years, available funds declined about 28% as enrollment was falling 17%.

“While OSU has managed through the cuts with tuition increases and expense reductions, the balance sheet is in a weaker overall position,” Carlson said. “The stable outlook reflects OSU’s co-flagship position in the state, moderate debt burden, solid debt service coverage, manageable debt plans and stable undergraduate enrollment.”

The university saw an almost 2% drop in enrollment in the last school year alone, costing OSU about $5 million in tuition and fees, according to recent news reports.

Oklahoma cut higher education funding over the previous five fiscal years by 17.8%, more than any other state in the nation, according to a survey by the University of Illinois. The cuts coincided with a deep downturn in oil prices that led to a series of revenue crises.

“Operations in recent years have been stressed primarily from the timing difference between multiple state appropriation cuts and OSU’s ability to respond with expense adjustments and tuition increases,” Carlson wrote. “Fitch expects OSU to manage effectively through Oklahoma’s relatively volatile funding environment, which is influenced by fluctuations in state oil and gas revenues.”

The only other states whose last five-year appropriations accounted for an overall decrease were Louisiana, West Virginia, Alaska, Kentucky, Arkansas and Kansas, according to the study.

To compensate for lost state support, Oklahoma universities and colleges increased tuition, cut programs, and let go of faculty and staff. Enrollment in 2018 continued to fall in public universities and colleges, according to state reports.

Carlson called OSU’s recent enrollment pattern consistent with national trends.

“Student demand is stable and representative of a flagship university,” she said. “OSU expects fall 2019 enrollment to be similar to fall 2018.”

The Fitch rating matches that of S&P Global Ratings, which has a stable outlook.

“Credit factors that could lead to negative rating actions include the inability to manage through any additional reductions in state appropriations, or enrollment declines, resulting in declines in cash or available resources, a trend of negative operations on a full-accrual basis, significant declines in enrollment, or the issuance of additional debt beyond current plans without a commensurate increase in revenue or financial resources,” S&P analyst Amber Schafer noted in affirming the rating.

The series 2019A bonds of $64.35 million will finance a new music school facility, improvements to roadways, sidewalks and lighting infrastructure on the Stillwater campus, and pay master lease debt. The $12.5 million 2019B bonds will fund utility system infrastructure upgrades and pay the purchase price under certain lease agreements with the Oklahoma Development Finance Authority to buy facilities on the Stillwater campus.

The revenue bonds are secured by revenue from the financing system, excluding state appropriations and any restricted funds and are on par with other general revenue bonds outstanding.

The financing system makes up the OSU-Stillwater and OSU-Tulsa campuses and excludes Oklahoma City, Center for Health Sciences in Tulsa, and the Okmulgee campuses.

“The university is likely to issue additional debt over the outlook period, but management anticipates this will be offset by similar-sized principal amortizations over the same period,” Schafer wrote.

OSU has about $908 million of debt, per Fitch.

Leave a Reply

Your email address will not be published. Required fields are marked *