S&P Raises University Debt Rating to AAA
Brandt Urban, MBA 1
Issue date: 2/7/05 Section: News
- Page 1 of 1
On February 3, 2005, the University of Michigan received a debt rating upgrade by Standard & Poor's from "AA+" to "AAA". The upgrade makes Michigan one of only three public universities with the AAA designation with the Universities of Texas and Virginia filling out the group.
The rating upgrade, and the cost savings the lower interest rates will bring, comes during one of the most challenging financial environments the University has faced. Provost Paul N. Courant, in his budget presentation to the Board of Regents, said that 2005, "taken in conjunction with FY 2004, and a difficult budgeting environment in FY 2003, we can say that the fiscal circumstances that the University [of Michigan] is dealing with are the most difficult that we have experienced in at least 40 years."
During FY 2004, the State of Michigan rescinded five percent, or $16.4 million, of its appropriations in the middle of the year because of budget shortfalls. According to Mr. Gregory Tewksbury, Treasurer of the University of Michigan, "The 'U' handled this difficult budgetary environment by continuing to cut costs and maintaining good financial stewardship."
While Standard & Poor's upgraded the University this year, Moody's upgraded the university in the fall of 2000. Mr Tewksbury suggested a few reasons for the delayed upgrade. He said, "[The University] had significant change in management between 2000 and today, specifically a new President and CFO. I think Standard & Poor's took a closer look at that and wanted to see how the University would handle the challenging financial environment over the past two years given the new management team."
The lapse between upgrades may, however, have some financial implications for the University. Since Moody's upgraded in 2000 the University has spent about four years with one AAA and one AA+ rating, effectively splitting the difference between the two debt ratings. As Mr. Tewksbury says, "Since we've been living with one AAA for a while, I prefer to be conservative and do not think we will see much savings [due to lower interest rates] from the S&P upgrade."
While the University may not realize significant cost savings from lower interest payments, Mr. Timothy P. Slottow, executive vice president and chief financial officer of the University of Michigan, said, "The upgrade also sends a signal to all University stakeholders about our successful ongoing focus on financial controls, budget discipline and 'best practices' in financial management."
The rating upgrade, and the cost savings the lower interest rates will bring, comes during one of the most challenging financial environments the University has faced. Provost Paul N. Courant, in his budget presentation to the Board of Regents, said that 2005, "taken in conjunction with FY 2004, and a difficult budgeting environment in FY 2003, we can say that the fiscal circumstances that the University [of Michigan] is dealing with are the most difficult that we have experienced in at least 40 years."
During FY 2004, the State of Michigan rescinded five percent, or $16.4 million, of its appropriations in the middle of the year because of budget shortfalls. According to Mr. Gregory Tewksbury, Treasurer of the University of Michigan, "The 'U' handled this difficult budgetary environment by continuing to cut costs and maintaining good financial stewardship."
While Standard & Poor's upgraded the University this year, Moody's upgraded the university in the fall of 2000. Mr Tewksbury suggested a few reasons for the delayed upgrade. He said, "[The University] had significant change in management between 2000 and today, specifically a new President and CFO. I think Standard & Poor's took a closer look at that and wanted to see how the University would handle the challenging financial environment over the past two years given the new management team."
The lapse between upgrades may, however, have some financial implications for the University. Since Moody's upgraded in 2000 the University has spent about four years with one AAA and one AA+ rating, effectively splitting the difference between the two debt ratings. As Mr. Tewksbury says, "Since we've been living with one AAA for a while, I prefer to be conservative and do not think we will see much savings [due to lower interest rates] from the S&P upgrade."
While the University may not realize significant cost savings from lower interest payments, Mr. Timothy P. Slottow, executive vice president and chief financial officer of the University of Michigan, said, "The upgrade also sends a signal to all University stakeholders about our successful ongoing focus on financial controls, budget discipline and 'best practices' in financial management."
