BATON ROUGE, LA (WAFB) - National investors have pulled out of a multi-million dollar bond deal for Louisiana State University due to concerns about possible drastic cuts in state funding for the university, State Treasurer John Kennedy said Friday. Kennedy's announcement that investors "pulled out" of the deal was vastly different from a statement LSU issued Friday morning that claimed the university was postponing issuing the bonds.
Kennedy says LSU issued $114 million in revenue and refunding bonds earlier this week. LSU sells bonds to investors to get up front money to pay for construction projects or to get a better deal on existing debt. Proceeds from this particular bond sale "would have funded a Family Housing Complex, residence halls and a Student Health Center and would also have saved interest on existing debt," Kennedy said. The bonds were priced Tuesday.
LSU said Friday morning it was postponing the issuing of nearly $115 million in bonds because of the "continued unpredictability of our state budget." LSU said it would "reevaluate the offering once the state's financial picture becomes clearer."
Earlier this month, Moody's Investors Service lowered LSU's credit outlook from "positive" to "stable" based on concerns about possible deep state budget cuts to the university. Because of that, LSU could have to pay more for construction projects while the university's credit outlook is in that lower status. Kennedy says Moody's actions "puts LSU one step away from a negative outlook, which could result in a downgrade for the university's credit rating."
"We're trying to sort out the facts. This is obviously not a welcome development," said Kennedy. "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, including an upcoming $300 million state general obligation bond issue."
"Higher education in Louisiana has been socked with back-to-back years of reduced funding," said Treasurer Kennedy. "Investors are sounding the alarm bell. We need to listen."
Public colleges are threatened with deep cuts up to 80 percent of their state financing in the budget year that begins July 1.
LSU System President F. King Alexander said campuses were readying the paperwork to file for "financial exigency," the equivalent of bankruptcy - in case cuts were so deep that exigency was needed.
The university says it hasn't started filing for exigency, but was just exploring the option. The possibility could have been enough to spook investors.
Here is the full news release from LSU:
Contrary to inaccurate media reports, LSU has not begun the process of filing for financial exigency, but we do continue to explore a wide range of contingency plans in light of the state's $1.6 billion shortfall. In light of recent events, LSU has decided to postpone the issuance of Series 2015 Auxiliary Revenue and Refunding Bonds in the amount of $114.5 million. Under the current circumstances and due to the continued unpredictably of our state budget, we believe this is the responsible thing to do, and we will reevaluate the offering once the state's financial picture becomes clearer.
We remain hopeful that the Legislature will develop solutions to protect funding for LSU and higher education in Louisiana, but we owe it to our students, faculty and staff to prepare for every possible outcome, as any responsible fiscal manager would do.