MSU credit rating being reviewed
Which is uniformly done before a downgrade
http://www.crainsdetroit.com/article/20180130/news/651571/msu-credit-ra…
January 30th, 2018 at 6:50 PM ^
Not.good.
January 30th, 2018 at 6:58 PM ^
Wait until all the lawsuits are done, their credit rating will be complete shit.
January 30th, 2018 at 6:52 PM ^
A billion dollars of forthcoming civil suit decisions will do that.
January 30th, 2018 at 6:58 PM ^
Word. No longer about sports in terms of punishment. They may not have the money to afford athletics for some time.
January 30th, 2018 at 7:13 PM ^
$1 billion potential liability hit to the balance sheet is just the beginning. Depending on how the Title IX investigation ends up, they could lose up to $450 million a year in funding (15% of operating budget). Either of those would certainly impact their ability to repay long-term debt.
January 30th, 2018 at 8:26 PM ^
Actually, I expect that MSU is trying to quietly issue a bond which will cover the forthcoming damages. A credit rating review would make a lot of sense if that's their strategy.
Strategy: you issue a bond in the amount of your expected damages, push for an annuitization of the damages (courts will usually grant this request), play the arbitrage game, and it's possible to come out ok financially.
January 30th, 2018 at 10:02 PM ^
Sounds kind of illegal
January 30th, 2018 at 10:53 PM ^
It's legal, and if you believe that you can get higher investment returns than the bond interest rate, it's a good idea. Mathematically.
The problem is that it's risky as shit: you're on the hook for the bond payments one way or another, but if you don't make your anticipated return on investments, boom, you're underwater.
So it really all depends on the bond's interest rate. Which is why it makes sense to me that MSU is undergoing a credit evaluation: I think they've asked a bond agency if they can get a big bond at a really really good rate. Meaning that MSU's income streams had better be rock solid.
January 31st, 2018 at 8:12 AM ^
A couple of questions, though. First, how does MSU "quietly" issue a bond - especially for such a volatile issue? It seems that you'd have to publish the bond details to any prospective bondholder, and typically the bondholder community does not enter into non-disclosure agreements. It's "public debt" and the terms would come out.
Second, why create a damages pot prior to any judgment or settlement? That's just ringing a dinner bell for the plaintiffs' bar. (Not that those folks don't need to eat!)
It seems the smarter play for MSU would be to try to get the claims certified as a class action, settle at an amount that you can survive, and then issue some bonds to cover the debt.
January 31st, 2018 at 9:04 AM ^
If MSU gets the bond first, 1) their credit will be better since they won't have the liability on the books when the bond is issues (and the rate will be better) 2) they can say it is for "building A" improvements, but once they have the money, they can redirect it towards anything they want 3) If designated for "building A", the lawyers aren't going to be able to say hey look at that pot of gold they have waiting for us (even if that is really what it is for). Pretty reasonable way to stay afloat on their part.
January 31st, 2018 at 10:24 AM ^
Good points. I think EM has hit the nail on the head that MSU attorneys probably want this to be a class action suit as well.
January 30th, 2018 at 6:55 PM ^
is going to be a crater before this is all done... and deservedly so
January 30th, 2018 at 11:41 PM ^
They have gone to 11 in the Landfill.
January 30th, 2018 at 6:59 PM ^
they're still going to be getting pre-approved offers in the mail for 0.00% APR* on a new Chase Visa
*for 6 months, after that period interest charges of 29.99% apply to all purchases and 239% to cash advances
January 30th, 2018 at 8:44 PM ^
*bail not included
January 30th, 2018 at 7:02 PM ^
Is it changing to a C rating? The same HS average grade you need to be accepted at MSU?
January 30th, 2018 at 7:05 PM ^
OMG NOOOO
January 30th, 2018 at 7:05 PM ^
do you think it will take a hit?
January 30th, 2018 at 7:07 PM ^
in the fish that squirming just causes another hook to go deeper. Engler’s selection, Izzo’s waffling, Walton's Title IX avoidance, BoT’s incompetence, OCR’s annoyance, King/Corley/Vance/Robertson trials, gymnast lawsuits, insurance counterclaims ... it won’t all miraculously disappear like usual in EL.
January 30th, 2018 at 7:13 PM ^
Partridge in a pear tree
January 30th, 2018 at 8:36 PM ^
'127 maidens weeping'. that's when we'll know how far the debt rating drops. not sure insurance is going to cover this one. maybe some, but definitely not all.
January 31st, 2018 at 8:05 AM ^
Sadly, we had over 150 maidens weeping in open court just last week. Because Larry Nassar is a deranged and loathsome person, and MSU actively avoided institutional policies to keep their superstar doctor on staff.
January 31st, 2018 at 10:08 AM ^
will fall for them. like a bad limbo dance, 'how low will it go??!!'
January 30th, 2018 at 7:29 PM ^
A downgrade of the credit rating would affect about $975 million in long-term debt. MSU's current credit rating is Aa1, the second-highest score by Moody's.
YIkes. Not sure how far it will fall but a tumble into even the Baa range would be a pretty interesting scenario for Michigan State in terms of paying on its obligations.
January 30th, 2018 at 7:43 PM ^
At $975 million, there will be plenty of interest regardless of the debt rating, amirite??
January 30th, 2018 at 7:31 PM ^
Pride cometh.
January 30th, 2018 at 7:41 PM ^
for a period of time in the 2012-2015 years. That's the comparable situation.
The agencies have a duty to review their rating, and MSU's rating likely falls a bit. But things would have to get rather crazy for MSU's credit (public University and all) to fall even into the A2-A3 range (still "upper medium grade").
For select Michigan public Universities, the September 2016 ratings:
AAA for U-M,
Aa1 for MSU,
Aa3 for Wayne State, Oakland and CMU,
A1 for WMU, Ferris and GVSU,
and A2 for EMU.
http://www.crainsdetroit.com/article/20160904/NEWS/160909960/building-a…
January 30th, 2018 at 7:56 PM ^
Michigan State's could be a $1billion. And with these concerns of a rape culture. I would suspect applications from people who identify themselves as female would decline.
January 30th, 2018 at 8:26 PM ^
PSU's $250MM number included (1) the $60MM NCAA fine, (2) PSU getting very little $ from their insurance company in helping pay victims, and (3) PSU protecting the 2nd Mile from being sued when they did settle with a victim.
This MSU case has many more victims, yes. But PSU also had the above dynamics that may not be in play for MSU. I'm sure MSU will at least try to have insurance cover this. Other parties beyond MSU (US Gymnastics) will get sued on this one, absolutely.
Yes - a Missouri-type situation (radically declining enrollment) is in play. That's a definite long-term threat.
January 30th, 2018 at 7:52 PM ^
all those Art Van credit cards.
January 30th, 2018 at 8:55 PM ^
"But...but...but...scUM is $150million in debt."
January 30th, 2018 at 11:49 PM ^
(add MSU to this list)
January 31st, 2018 at 8:16 AM ^
LAS's statement on this is telling:
While I was serving as Michigan State's President the university's Moody's rating was Aa1 - about as high as a university's rating gets. This is further evidence that, political machinations aside, I was doing a great job at Michigan State. The robust Board of Trustees support I received until tendering my resignation is irrefutable evidence of my great stewardship until I decided to "take one for the team" for the betterment of the school.
A strong credit rating is essential to future borrowing activity, and a downgrade may trigger obligations under existing loan and bond facilities. It stands to reason that any downgrade in Moody's or Standard and Poors ratings of Michigan State's creditworthiness will be a reflection that I am no longer at the helm of Michigan State.
/s
January 31st, 2018 at 8:48 AM ^
She was a fantastic, uh..., er..., nevermind.
January 31st, 2018 at 8:47 AM ^
Contingent liability is looking large these days, wouldn't you say?
January 31st, 2018 at 8:59 AM ^
This is an asshole move. It is not good for any tax payer in Michigan to have a billion or so in debt downgraded by the same assclowns that rated toxic mortgage securities AAA
January 31st, 2018 at 3:54 PM ^
I always wondered why the ratings agencies never had to pay the piper after the financial collapse.
January 31st, 2018 at 10:27 AM ^
It would appear there is a direct correlation between credit and credibility.
January 31st, 2018 at 10:35 AM ^
Watching TV with my wife, seeing msu stuff she heard nassar's name. My wife mentioned several years ago that her cousin talked to her about being assaulted by Nassar! A year or so later she took the day off work (she is a few steps away from being a doctor) and drove to EL to file her report. She is currently struggling with Extreme deep depression! including suicide attempts! We as a family are rallying around her to help her get through this. Since last night's discussion I am struggling with more ANGER than just reading (seeing on tv) about these atrocities! Lord please bring Peace and healing to those that have been hurt/crushed!
January 31st, 2018 at 11:10 AM ^
This is exactly the insight that needs to stay front and center. Women, girls, spouses, children, cousins, friends - there are thousands of people deeply hurt and affected by this situation. A holistic, systemic solution that helps the healing and prevents reoccurrence. must be the forcus.
MSU's leadership can continue to treat it merely as a political, finanical, power, brand issue - but the greater good has nothing to do with a group of trustees, administrators and coaches in East Lansing. That heals nothing.
January 31st, 2018 at 5:20 PM ^
Our cousin really needs those right now.
January 31st, 2018 at 12:10 PM ^
Is about as low as they will fall, if that.
Sparty has a very strong endowment along with a nice batch of way multiple millionaires all eager to get this behind them.
I would also be very suprised if they even blip down in applications, even by women and really don't believe that their enrollment will suffer in the least.
Kids will just tell themselves that they have nothing to worry about as long as they stay the hell away from scholarship athletes. They will tell themselves that because mostly it will be true and to the extent that it isn't, that's just how the mind works. A kid that has been pointing at a BIG university for 5 years or so isn't going to come off that point because the athletic department has covered up a rape scandal. And they for damn sure aren't going to think paying outstate tuition is a real good idea.
I look to Izzo and Dantonio getting tearful goodbyes after much rage and nashing of teeth, some very generous cash awards, some embarrassing headlines and then this will be just as over as it is for Penn State.