TU Financials

[HuffyCane]

i try to keep my mouth shut about the inner workings of the school on this Board. It just isn’t productive to talk about why decisions are made without complete information and all points of view. nor is any conversation productive when the responders don’t understand or take the time to learn the basics of university finance and simple things like the formula used to calculate what can be allocated and spent unrestricted from the net proceeds on the earnings of the endowment.

That’s before we even start talking about bond finance, the advisability of using outside bond counsel and other high risk policy decisions we’ve made in the past.

But we’ve had a lot of questions about university finances and the future of TU, so I thought I would share a few documents. They are publicly available documents through the FY 16 school year. For the most part, it shows TU’s debts, the use of lines of credit for operating expenses from unusual sources, such as the George Kaiser Family Foundation and the amount TU was using in a line of credit from BOK to keep pace with costs of expansion and still meet operating demands. They borrowed somewhere between $25 and the limit of $50 million to keep the lights on or pay down debt at higher interest rates. We can’t see why or what the money went to.

It’s worth noting a few things. First, these numbers are from an outside vendor, but they rely on the representations of the school and it was a rosy time for TU. Things have changed substantially as more debts have come due, but you can get a snapshot of how much debt TU had to retire or refinance and how that’s effecting short and long term planning as full pay student retention numbers have plummeted.

TU had to evolve and make these investments in infrastructure. Despite the thinly veiled “I told you so” greed of the faculty dissent crowd who either wanted the money spent on them or on projects that helped them or that they could take credit for in the lounge, TU would be in significantly worse shape than what it is now without the programs and amenities that the bond funds were used for to improve the residential experience of the school. Today’s kids are spoiled and today’s parents don’t write TU sized checks without the immediate payoff of a nice gym, student union, new dorms and apartments, etc.

What is troubling is what remains unanswered from some of these documents, such as the bonds used to partially redo the stadium, the refinance of those bonds at unfavorable rates and making them student tuition revenue dependent and other questionable decisions that indicate a level of spending money to make money financial stress around 2010 when we were dropping cash on TG.

There’s plenty on the web that will explain what I mean if you want to go find it. I don’t have the time or interest to go through a decade of financials and give you a forensic critique on decision making. Again, because I’m not on the board or on campus working everyday. I simply don’t have a full picture. My sense is that these documents don’t have a full picture either as we enter 2019.

https://pp-990-audits.s3.amazonaws.com/9976220161.pdf?X-Amz-Algorithm=AWS4-HMAC-SHA256&X-Amz-Credential=AKIAI7C6X5GT42DHYZIA/20181015/us-east-1/s3/aws4_request&X-Amz-Date=20181015T153645Z&X-Amz-Expires=1800&X-Amz-SignedHeaders=host&X-Amz-Signature=a6663bb49ec26f33fcb5048c07142f98bb8922c1c344e7947e5a8e94136f142b

 

[HuffyCane]

https://projects.propublica.org/nonprofits/organizations/730579298/201711329349303151/IRS990

 

[goldenhurricane2]

Very interesting, thanks for sharing. Almost everything I’ve witbessed and heard from folks who work towards the top at TU hasn’t been positive... at all. So it’s enlightening to see this information.

 

[HuffyCane]

Very interesting, thanks for sharing. Almost everything I’ve witbessed and heard from folks who work towards the top at TU hasn’t been positive... at all. So it’s enlightening to see this information.

Not a problem. I am here to inform and entertain.

 

[HuffyCane]

Moody’s Investors Service has downgraded our rating on revenue and student housing bonds to Baa3.

It won’t effect TU’s ability to borrow, as if for some reason they need to begin borrowing again.

The decrease is consistent with across the board negative ratings for higher education especially small private universities.

I’m told that Moody’s made the rating determination despite TU sharing with them considerable positive outcomes on debt reduction and cost containment.

I would think there will be a rating change when the debt comes down even further next year which it is almost certain to do if the freshman numbers and retention stays constant.

 

[chito_and_leon]

Moody’s Investors Service has downgraded our rating on revenue and student housing bonds to Baa3.

It won’t effect TU’s ability to borrow, as if for some reason they need to begin borrowing again.

The decrease is consistent with across the board negative ratings for higher education especially small private universities.

I’m told that Moody’s made the rating determination despite TU sharing with them considerable positive outcomes on debt reduction and cost containment.

I would think there will be a rating change when the debt comes down even further next year which it is almost certain to do if the freshman numbers and retention stays constant.

You can sugar coat it all you want, but the truth is that this is a major vote of no confidence in the leadership and TU Committed. This was a two step drop, from Baa1 to Baa3, which is the lowest tier of investment grade bonds. We're now a heartbeat from being a high-yield bond. Whatever the school told Moody's, it was apparently staggeringly unpersuasive. Two step drops are uncommon except in the event of a major negative change in outlook. This is a strong statement that they don't see current leadership and plans turning TU around.

BTW, lots of universities continue to maintain or improve their ratings, it's not like Moody's does these downgrades across the board for universities. It's a very individualized analysis looking at the overall condition of the organization. OU's credit rating btw held steady at A+, which is 5 levels higher than TU.

 

[HuffyCane]

Your frustration at not being in control of the areas where there has been cost cutting is clouding your objectivity.

Moody’s isn’t doing across the board downgrades, but it’s been warning about problems like TU for at least 6 years now. For instance, in 2014, Moody’s warned of more downgrades far out pacing upgrades. In 2018, it declared the entire higher ed sector a negative.

https://www.insidehighered.com/sites/default/server_files/media/2018 Outlook for Higher Education Changed to Negative.pdf
Moodys is predicting 1 in 5 schools similar to TU are going to close and doing dramatic bond downgrades for many private schools.

And they are doing it in the UK as well.

http://ftalphaville.ft.com/2019/05/...ks-about-the-prospect-of-a-university-crisis/

You want to blame this on the administration, that’s fine. You have a right to your opinion and I respect that despite your reliance on conjecture. You even have the right to post false information here. But you can’t in good faith claim that the downgrade is a statement of no faith by Moody’s. They simply don’t do that.

At best, it’s a statement that they believe that opening up admissions to more students is not going to generate enough revenue to continue long term debt reduction. And the jury’s out on that. But it’s a prudent leadership move under extraordinary circumstances.

 

[TulsaAM]

Your frustration at not being in control of the areas where there has been cost cutting is clouding your objectivity.

Moody’s isn’t doing across the board downgrades, but it’s been warning about problems like TU for at least 6 years now. For instance, in 2014, Moody’s warned of more downgrades far out pacing upgrades. In 2018, it declared the entire higher ed sector a negative.

https://www.insidehighered.com/sites/default/server_files/media/2018 Outlook for Higher Education Changed to Negative.pdf
Moodys is predicting 1 in 5 schools similar to TU are going to close and doing dramatic bond downgrades for many private schools.

And they are doing it in the UK as well.

http://ftalphaville.ft.com/2019/05/...ks-about-the-prospect-of-a-university-crisis/

You want to blame this on the administration, that’s fine. You have a right to your opinion and I respect that despite your reliance on conjecture. You even have the right to post false information here. But you can’t in good faith claim that the downgrade is a statement of no faith by Moody’s. They simply don’t do that.

At best, it’s a statement that they believe that opening up admissions to more students is not going to generate enough revenue to continue long term debt reduction. And the jury’s out on that. But it’s a prudent leadership move under extraordinary circumstances.

This fight was waged and won/lost decades ago. Delivery of higher education has changed and private schools like TU have been starring contraction in the face. For TU, once OSU-Tulsa came to town the writing was on the wall. Times change, and those that adapt survive. Where I think you can blame the administration and board is they didn't see this early enough to react without facing the pain they are going through now.

For example, TU could have been a leader in on-line computer and network security programs. Those programs have been mints for most schools.

 

[HuffyCane]

This fight was waged and won/lost decades ago. Delivery of higher education has changed and private schools like TU have been starring contraction in the face. For TU, once OSU-Tulsa came to town the writing was on the wall. Times change, and those that adapt survive. Where I think you can blame the administration and board is they didn't see this early enough to react without facing the pain they are going through now.

For example, TU could have been a leader in on-line computer and network security programs. Those programs have been mints for most schools.

They knew. They chose to go in a different direction under Stead’s leadership to avoid the pain. A cynic would tell you that TU has always had a brand as a haven for stuck up people who didn’t want to send their kids to the in state flagship public uni. They extended that cynicism to the parents of wealthy Chinese. So they gamed the rankings to get above Top 100, which is a magic artificial threshold for them, then lower the English proficiency requirements to the lowest in the Top 100 and below generally acceptable standards to maximize enrollment from China. It’s why if you went to school at TU from 2008 to 2013 close to ten percent of your class, in some classes higher, were mainland Chinese and so many didn’t speak to you. They couldn’t. Cheating was starting to become a problem.

Most of the online education you are talking about is off the shelf software operated by third parties who essentially license the school’s name in exchange for enrollment boosts and accreditation they can’t get otherwise. Even resident faculty teaching at the home institution are often paid separately. Its a moonlighting gig for them. Most of those companies are looking for better relationships — schools in CA and the Northeast where demand is higher and prestige is greater. So I honestly don’t think money was left on the table there. You can bet if there was money to be made Stead and especially the leadership of the business school would have vultured. If there was money left on the table, then the source of the block to that type of expansion was likely the Byzantine nature of TU faculty “decision making”* that saw online curriculum consultants as a threat to their turf. The ivory tower gets restless when you start bringing in larger and more efficient revenue streams with fireable faculty paid in pennies not ridiculous sums. Pretty soon that guild that thinks they run a perpetual knowledge cartel wakes up from their self worshiping romantic delusions and starts causing trouble. No different than the situation now. And that’s why their current public rantings and mis statements should be ignored.

 

[chito_and_leon]

But you can’t in good faith claim that the downgrade is a statement of no faith by Moody’s. They simply don’t do that.

Uggh, I always enjoy discussions with you but I have to say, your deaf, dumb and naive routine gets old and tiring. It's absolutely a vote of no confidence in the business and administration and you know that. Moody's doesn't just make alarming and major moves like 2 tier drops to the bottom of investment grade willy nilly. So everyone on the planet looks at the underlying business to see why the downgrade happened. Sometimes it's external like Mich. St.'s downgrade after paying $500m to the Nassar survivors or U of Alaska downgrade after the state slashed funding. But it's not that with TU. And although Moody's has a negative view on higher ed, that can't explain TU's cut. Lots of schools maintain or increase their ratings amid the negative outlook. It's specific to TU, and it's happened in the 3 months since the last rating review. What can it be? There's nothing left but leadership, business plan and recent results of operations. Some combination of those explains the large and alarming drop. Moody's won't say "leadership is a bunch of fools" but everyone on the planet knows what to read between those lines.

The ratings drop does not have anything to do with ability to pay off loans early - it means Moody's has significantly greater concerns now than 3 months ago about TU's ability to pay the loans on their terms - not to default in other words. What happened recently to make them so concerned?

The Moody's report is interesting. The negative rating on education is almost entirely driven by concerns about public universities, not private. TU is "lucky" enough to fall in the bottom half of private universities that can't keep up. When you ask, why did we get a 2 tier drop, think about this. Being in the bottom half of performance in a segment that is doing pretty well will get that for you.

"In general, public universities will experience greater pressure than their private counterparts. Less than 20% of public universities thatwe rate will have total revenue growth above 3% while over half of private universities will achieve 3% growth."

 

[lawpoke87]

For my clarity, what other schools in the AAC carries the same Moody’s grade as TU? What P5 schools carry that grade? Listed those schools would give some perspective (at least for me) of where we are compared to our fellow schools.

 

[chito_and_leon]

This fight was waged and won/lost decades ago. Delivery of higher education has changed and private schools like TU have been starring contraction in the face. For TU, once OSU-Tulsa came to town the writing was on the wall. Times change, and those that adapt survive. Where I think you can blame the administration and board is they didn't see this early enough to react without facing the pain they are going through now.

For example, TU could have been a leader in on-line computer and network security programs. Those programs have been mints for most schools.

It's easy to be overly negative but the vast majority of universities will be fine. The ones at risk are small and have no endowment - the attached article is really interesting. These are not schools like TU. TU should be well above this risk. There's a lot going on with TU Committed that has nothing to do with TU, or where TU is just a cog in a much bigger machine. That's the risk. TU as a stand alone entity, left to its own devices, would be fine.

Though of course changes were and are necessary to reflect changes in the market. It's certainly not too late for that. The pace of technology change in higher ed presents lots of interesting growth opportunities. TU, unfortunately, has chosen a 2005 business model that has been widely shown to be ineffective and that has been peddled by consultants to lots of other schools, so TU is once again too late to the party.

https://www.theatlantic.com/educati...its-like-when-your-college-shuts-down/591862/

 

[HuffyCane]

You are forgetting some important things: 1). Moody’s may have had less confidence had TU stayed with the status quo. The bond rating could have been lower. The accreditation folks certainly had/have concerns with the status quo. 2) you blame leadership, but Moody’s rating is based in part on forces leadership can’t control and in some cases can’t respond to. If nobody wants to go to school in Oklahoma and nobody in Oklahoma wants to pay for TU based on faulty assumptions about cost/debt versus OU, then how is that the current leaderships fault? Shouldn’t they tailor the product offered to the market? Shouldn’t they make TU more affordable and accessible to students coming out of Oklahoma’s atrocious public schools? Aren’t such changes the source of your complaint?

 

[HuffyCane]

This fight was waged and won/lost decades ago. Delivery of higher education has changed and private schools like TU have been starring contraction in the face. For TU, once OSU-Tulsa came to town the writing was on the wall. Times change, and those that adapt survive. Where I think you can blame the administration and board is they didn't see this early enough to react without facing the pain they are going through now.

For example, TU could have been a leader in on-line computer and network security programs. Those programs have been mints for most schools.

A big part of the fight was lost when the American economy began to evolve in the 1990s at the same time college got more expensive but more affordable with grants and loans.

A big part of TU’s allure from 1945 to 1995 was that you could get a “back East” education without the hardship of leaving Oklahoma. Modern air travel and higher discretionary incomes for parents means kids that used to stay home are going to Notre Dame or Duke or whatever. We’ve never really responded to that change in the market besides reward credentialed faculty and bring in a bunch of foreign students.

 

[HuffyCane]

For my clarity, what other schools in the AAC carries the same Moody’s grade as TU? What P5 schools carry that grade? Listed those schools would give some perspective (at least for me) of where we are compared to our fellow schools.

Bond rating comparisons between the AAC and TU are apples and oranges. SMU gets $10 million dollar gifts routinely. They have no debt problem. And if they did, one fundraising cycle would extinguish it. Our school structure and residential settings are similar but the comparisons stop there. Their institutional framework is steel. We are balsa wood. We have a huge endowment well managed but the base of contributors willing to make major recurring gifts is a toothpick in a forest compared to SMU or even Tulane. The other schools are regional state universities backed by major real estate holdings and the taxpayers. Their low bond ratings are typically tied to appropriations uncertainty and future promises to pay other contracts. (If you have signed contracts to build a hospital and the state legislature is threatening to cut your budget then you might default or reneg on the bonds you issued to build the parking garage last year.)

 

[chito_and_leon]

For my clarity, what other schools in the AAC carries the same Moody’s grade as TU? What P5 schools carry that grade? Listed those schools would give some perspective (at least for me) of where we are compared to our fellow schools.

TU is in the bottom 10% of private universities. As in, 90% of private 4 year universities have a higher rating than TU. Slide 3. Sorry, I can't link directly to the terrifying picture.

You'll see there is a huge break between Baa1 where we were 3 months ago and Baa3 where we are now. This drop is a huge deal.

https://www.aascu.org/meetings/hegrc18/Shaffer.pdf

 

[chito_and_leon]

You are forgetting some important things: 1). Moody’s may have had less confidence had TU stayed with the status quo. The bond rating could have been lower. The accreditation folks certainly had/have concerns with the status quo. 2) you blame leadership, but Moody’s rating is based in part on forces leadership can’t control and in some cases can’t respond to. If nobody wants to go to school in Oklahoma and nobody in Oklahoma wants to pay for TU based on faulty assumptions about cost/debt versus OU, then how is that the current leaderships fault? Shouldn’t they tailor the product offered to the market? Shouldn’t they make TU more affordable and accessible to students coming out of Oklahoma’s atrocious public schools? Aren’t such changes the source of your complaint?

Yes, exactly It's leadership's job to offer a product that people want to buy. The Moody's rating says they have significantly less faith in TU's leadership to do that than they do the leaders of 90% of the other private universities they rate. I think changes are needed at TU, I just wish they had chosen a new path forward that wasn't as dumb as the one they picked. And Moody's apparently agree. They just don't see it being successful for reasons that are pretty obvious.

There might external events that weigh in, too, as I mentioned with MSU and Alaska. I'm not aware of anything like that with TU though.

 

[HuffyCane]

TU is in the bottom 10% of private universities. As in, 90% of private 4 year universities have a higher rating than TU. Slide 3. Sorry, I can't link directly to the terrifying picture.

You'll see there is a huge break between Baa1 where we were 3 months ago and Baa3 where we are now. This drop is a huge deal.

https://www.aascu.org/meetings/hegrc18/Shaffer.pdf

That’s a year old but helpful. Does it matter? TU isn’t going to issue bonds any time soon and isn’t going to borrow from anyone but BOK or GKFF.

 

[HuffyCane]

Yes, exactly It's leadership's job to offer a product that people want to buy. The Moody's rating says they have significantly less faith in TU's leadership to do that than they do the leaders of 90% of the other private universities they rate. I think changes are needed at TU, I just wish they had chosen a new path forward that wasn't as dumb as the one they picked. And Moody's apparently agree. They just don't see it being successful for reasons that are pretty obvious.

There might external events that weigh in, too, as I mentioned with MSU and Alaska. I'm not aware of anything like that with TU though.

They look at the numbers. Not who is in charge or whether they are talking about super colleges

 

[chito_and_leon]

They look at the numbers. Not who is in charge or whether they are talking about super colleges

Good lord where do you come up with this nonsense! You really believe they judge business potential without looking at leadership? If Jeff Bezos left Amazon and went to Bed Bath and Beyond, you don't think, BB&B's ratings would improve? The suggestion is insanity.

Moody's talks explicitly about how they factor leadership into ratings, if facts matter to anyone. Below is just an excerpt of a long piece about how important it is. Leadership is considered more in times of change - which is interesting since in our time of change, when leadership is valued most, we got whacked with an astounding 2 tier drop. That's telling you something big if you're listening.
-------------------------------------------------

"In fact, at Moody’s we expect that the quality of a higher-education institution’s leadership team will be the main differentiating credit factor in light of reduced prospects for net tuition growth, the need for careful management of liquidity and debt-structure risks, and continuing financial pressures on the federal and state governments as well as private donors.

In our published ratings reports, we discuss our assessment of an institution’s governance and management to explain our rating opinions. Those assessments are a core part of the rating evaluation and often cause a final rating to be higher or lower than what would be indicated by a purely quantitative ratio analysis. Assessment of governance and management is especially likely to alter a rating outcome when the institution lacks great endowed wealth and is acutely dependent on competitive strategies to generate sufficient revenue from students, donors, and the government—conditions that apply to a large majority of colleges and universities in the United States.

The weight of governance and management assessments in our analysis is particularly important when a college or university is facing strategic change. We pay close attention when an institution is embarking on a major expansion of programs, initiating a significant new borrowing or fundraising campaign, undergoing financial stress, confronting a weakening market position, or experiencing high turnover in senior leadership."

https://agb.org/trusteeship-article/how-boards-and-presidents-influence-credit-ratings/

 

[chito_and_leon]

That’s a year old but helpful. Does it matter? TU isn’t going to issue bonds any time soon and isn’t going to borrow from anyone but BOK or GKFF.

It matters because it tells you a lot about what Moody's thinks about our leadership and business plan. You go off about how opposition to TU Commited and the admin is just a bunch of disgruntled faculty and people who have personal issues, but now we have Moody's, whose job is to rate business risk, making a very strong statement of lack of confidence. Moody's has no beef or grudge or personal skin in the game. They're professionals, and they think TU is on the wrong path.

 

[TulsaAM]

A lot of words have been said, but it all boils down to TU is in trouble. Until that is corrected, athletics will not be a focus and we, as fans, will suffer through mediocre seasons. But then, a successful athletics program does mean more financial success for the school in general. I mean, we all know Georgia but have we heard of Georgia State https://www.gsu.edu/?

 

[HuffyCane]

Good lord where do you come up with this nonsense! You really believe they judge business potential without looking at leadership? If Jeff Bezos left Amazon and went to Bed Bath and Beyond, you don't think, BB&B's ratings would improve? The suggestion is insanity.

Moody's talks explicitly about how they factor leadership into ratings, if facts matter to anyone. Below is just an excerpt of a long piece about how important it is. Leadership is considered more in times of change - which is interesting since in our time of change, when leadership is valued most, we got whacked with an astounding 2 tier drop. That's telling you something big if you're listening.
-------------------------------------------------

"In fact, at Moody’s we expect that the quality of a higher-education institution’s leadership team will be the main differentiating credit factor in light of reduced prospects for net tuition growth, the need for careful management of liquidity and debt-structure risks, and continuing financial pressures on the federal and state governments as well as private donors.

In our published ratings reports, we discuss our assessment of an institution’s governance and management to explain our rating opinions. Those assessments are a core part of the rating evaluation and often cause a final rating to be higher or lower than what would be indicated by a purely quantitative ratio analysis. Assessment of governance and management is especially likely to alter a rating outcome when the institution lacks great endowed wealth and is acutely dependent on competitive strategies to generate sufficient revenue from students, donors, and the government—conditions that apply to a large majority of colleges and universities in the United States.

The weight of governance and management assessments in our analysis is particularly important when a college or university is facing strategic change. We pay close attention when an institution is embarking on a major expansion of programs, initiating a significant new borrowing or fundraising campaign, undergoing financial stress, confronting a weakening market position, or experiencing high turnover in senior leadership."

https://agb.org/trusteeship-article/how-boards-and-presidents-influence-credit-ratings/

I noticed that you didn’t highlight the sentence that says leadership matters if the school doesn’t have a huge endowment.

 

[chito_and_leon]

I noticed that you didn’t highlight the sentence that says leadership matters if the school doesn’t have a huge endowment.

Come on, you're better than this. It's a list of different situations where leadership matters even more than usual - it always is important and factored in, but it's especially important in times of change OR for schools without large endowments. Not AND. If you hit any one of the list, then it's a time leadership is factored in more, you don't need them all. So the fact that we have a large endowment isn't relevant to whether Moody's factors leadership in more for us because we check the "time of change" box. Why do you make these arguments that are so dumb? I know you know it's like a kamikaze attack...

 

[HuffyCane]

Come on, you're better than this. It's a list of different situations where leadership matters even more than usual - it always is important and factored in, but it's especially important in times of change OR for schools without large endowments. Not AND. If you hit any one of the list, then it's a time leadership is factored in more, you don't need them all. So the fact that we have a large endowment isn't relevant to whether Moody's factors leadership in more for us because we check the "time of change" box. Why do you make these arguments that are so dumb? I know you know it's like a kamikaze attack...

Its a technique used by all the lawyers when you want a witness to tell you what they really know and you believe their lead arguments are incomplete or flawed. You intentionally make a semi informed statement and then the non hostile witness makes better points trying to educate or persuade you. Which you’ve done here. You haven’t persuaded me, but you have been helpful in locating some facts I’ve been too lazy to pull. Thanks for that.

 

[HuffyCane]

Here’s the full Moody’s statement. Nothing in here about Board or Administration leadership being the reason for the downgrade or that if current strategies are ineffective a downgrade will result. Indeed the reason for the downgrade appears to be in part the structure of the bond issue itself and the risks inherent in tying it to student tuition revenue. Something we discussed ad nausem last year, including in the OP of this thread. A fact that pre-dates the current admin and lands squarely on the shoulders of Stead and several pro athletics trustees.

https://www.moodys.com/research/Moo...lsa-OK-to-Baa3-outlook-negative--PR_906220308

Rating Action:
Moody's downgrades University of Tulsa (OK) to Baa3; outlook negative

19 Dec 2019
New York, December 19, 2019 -- Moody's Investors Service has downgraded the ratings on the University of Tulsa's (OK) revenue bonds and student housing bonds to Baa3 from Baa1. The outlook is negative. This action impacts approximately $85 million of rated bonds issued through the Tulsa Industrial Authority, Oklahoma.



RATINGS RATIONALE



The two notch downgrade to Baa3 reflects University of Tulsa's (TU) very weak operating performance resulting in further erosion of liquidity and an increasingly heavy reliance on a line of credit. A significant 24% decline in net tuition revenue over the fiscal 2015-19 period and concurrent rise in expenditures per student highlight the university's current fundamental fiscal imbalance. Deficits have been funded through the use of reserves and quasi-endowment, decreasing available monthly liquidity to a thin 28 days in fiscal 2019, inclusive of draws on the line of credit. Operating cash flow has been insufficient to cover debt service over the fiscal 2015-19 period. Net tuition revenue growth has been adversely affected by a shifting student market, including loss of international students and further marked by stiff competition for students driving increasing tuition discounting.



The Baa3 rating acknowledges University of Tulsa's significant wealth with $553 million of cash and investments and benefitting from sizable external trusts providing over $25 million of support annually. Donor support has been strong and a critical element of its still investment grade quality. TU is currently engaged in a strategic plan for optimizing enrollment, realigning academic programs and reducing the university's currently unsustainable cost structure. If successful, the plan has prospects for gradually improving operations, although management will likely continue to confront headwinds during implementation. Though financial leverage reflected by spendable cash and investments to debt is a moderate 1.5x, debt service is currently not affordable due to weak cash flow.



The Baa3 rating on the subordinate student housing revenue bonds incorporates a debt service fund replenishment feature from the trust supporting the university, resulting in a similar rating to the senior revenue bonds.



RATING OUTLOOK



The negative outlook incorporates our expectations that fiscal 2020 operations will remain weak and indicates the potential for downward pressure should TU fail to stabilize net tuition revenue and reduce expenses, decreasing the reliance on line of credit.



FACTORS THAT COULD LEAD TO AN UPGRADE



- Sustained stronger operating cash flow and debt service coverage

- Material strengthening of the university's student market position, highlighted by growing overall net tuition revenue and increasing net tuition per student

- Substantial growth in unrestricted liquidity without reliance operating line of credit



FACTORS THAT COULD LEAD TO A DOWNGRADE



- Loss or disruption in access to working capital line of credit

- Larger than currently projected fiscal 2020 deficit or inability to make material progress over the next two years to improve net tuition per student and cash flow from operations to sustainably cover debt service

- Reductions in donor support for operations or capital

- Material increase in debt



LEGAL SECURITY



TU's tuition-backed revenue bonds (Series 2011, 2017 and 2019 bonds) are general obligations, secured by an interest in pledged tuition revenues. In addition, the Series 2011 bonds have a mortgage on a portion of the university's campus (includes a portion of land that the Series 2013 housing revenue bonds project is located). All revenue bond series have associated debt service reserve funds and a financial covenant to meet an Available Funds Ratio of not less than 0.5 times at all times during the fiscal year. Should this ratio fall below 0.5 times, TU must deposit collateral with a third party in an amount to satisfy the ratio requirement. As of June 30, 2019, the university's Available Funds Ratio was 1.45x.



The Series 2013 and 2015 student housing revenue bonds are general obligations with a security interest in the university's gross housing fee revenues (net of certain sorority housing revenues). Each series has its own debt service reserve fund, which is funded at maximum annual debt service (MADS). The bonds have a 1.0 times rate covenant after all operating and maintenance expenses and an additional bonds test of 1.5 times MADS. The fiscal 2019 gross pledged housing fee revenue totaled $17.4 million and net housing fee revenue was $14.3 million, providing MADS of $4.06 million with coverage of 3.5x.



The student housing bonds are supported by a Reserve Fund Replenishment Agreement of the J.A. Chapman and Leta M. Chapman Charitable Trust (the 1966 trust). Under the terms of the agreement, the 1966 Trust will pay any deficiency in loan payments directly to the trustee on or before the debt service payment date, drawing from quarterly distributions (fiscal 2019 total annual receipt of $15 million).



We do not distinguish between the ratings on the student housing bonds and the outstanding tuition revenue bonds because of the support provided by the Reserve Fund Replenishment Agreement. The student housing bonds are subordinate to the tuition-backed revenue bonds, and cannot be accelerated as long as tuition revenue bonds remain outstanding. Payment of the student housing bonds is suspended during any period the payment obligation of the tuition revenue bonds are in default or while the university is in bankruptcy. The 1966 Trust reserve fund replenishment agreement does not apply to the tuition revenue bonds.



PROFILE



The University of Tulsa is a private coeducational institution, originating in 1894. TU offers comprehensive academic programs, in addition to doctoral research programs. For fiscal 2019, TU recorded $201 million in operating revenue and for fall 2019 enrolled 4,208 full-time equivalent (FTE) students.



METHODOLOGY



The principal methodology used in these ratings was Higher Education published in May 2019. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.



REGULATORY DISCLOSURES



For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.



Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Mary Cooney
Lead Analyst
Higher Education
Moody's Investors Service, Inc.
7 World Trade Center
250 Greenwich Street
New York 10007

 

[Gmoney4WW]

Its a technique used by all the lawyers when you want a witness to tell you what they really know and you believe their lead arguments are incomplete or flawed. You intentionally make a semi informed statement and then the non hostile witness makes better points trying to educate or persuade you. Which you’ve done here. You haven’t persuaded me, but you have been helpful in locating some facts I’ve been too lazy to pull. Thanks for that.

Attempting to read between the lines, it sounds as if they are taking all of that into account.(Numbers. current environment, and leadership) Leadership & plans being executed by that leadership seems to be referenced most heavily in the sections about 'Factors that could lead to a downgrade/upgrade.'

I don't think you could say leadership would be the major cause from this report for the downgrade. From this report, the most you could say is it would be an equal cause to the numbers and current environment. I'm not saying that the statement of leadership being the major cause is true or false, just commenting about what would be a justifiable statement from simply reading the Moody report.

 

[chito_and_leon]

Indeed the reason for the downgrade appears to be in part the structure of the bond issue itself and the risks inherent in tying it to student tuition revenue.

Uh, no, the drop results from poor performance and Moody's expectation that the poor performance will continue into the future - "The negative outlook incorporates our expectations that fiscal 2020 operations will remain weak and indicates the potential for downward pressure should TU fail to stabilize net tuition revenue and reduce expenses, decreasing the reliance on line of credit."

Who's responsible for making it better? University leadership If you expect it to stay bad, that means university leadership is not able to turn it around. Not much "between the lines" reading needed really. Your argument is like "Monty is a great coach. TU should go 4-8 next year." Um, ok.

 

[TulsaAM]

What will raise tuition revenues is marketing of the university to more students, investment in student facilities, lab/faculty investment in the most popular programs, research investments in areas that could yield profitable patents, etc. All that takes money which TU doesn't have and can't get through loans with this downgrade.

If TU cannot realistically raise tuition revenues by "spending their way out of it" then it will need to achieve better fiscal outcomes through staff reductions (either in number, reduced compensation or reduction of benefits), vendor contract negotiations, faculty reductions, reduction in program offerings (program merging), shutdown of unused buildings/space, etc.

Looks like a rock and a hard place situation for us...

 

[HuffyCane]

What will raise tuition revenues is marketing of the university to more students, investment in student facilities, lab/faculty investment in the most popular programs, research investments in areas that could yield profitable patents, etc. All that takes money which TU doesn't have and can't get through loans with this downgrade.

If TU cannot realistically raise tuition revenues by "spending their way out of it" then it will need to achieve better fiscal outcomes through staff reductions (either in number, reduced compensation or reduction of benefits), vendor contract negotiations, faculty reductions, reduction in program offerings (program merging), shutdown of unused buildings/space, etc.

Looks like a rock and a hard place situation for us...

Your first paragraph is basically what Stead tried to do and borrowed to do it. Your second paragraph is what anyone in the job is going to have to do going forward. It’s what leadership is doing, albeit dressing it up to make it look better than it is and that backfired through poor execution by some in leadership. Despite what you read above, Moody’s believes that the higher education sector as a whole, small private schools, and TU in particular because of some of its debt burden and operating expenses but also its location on the map make it unlikely that significant savings can be realized and that deficit spending will continue. Current market forces unrelated to who is in charge at TU make it unlikely that a larger number of students will be choosing TU. Therefore they are cautioning folks making investments not to buy debt tied to enrollment numbers and revenue generated per student. It’s almost speculative in today’s overall environment.

 

[chito_and_leon]

Attempting to read between the lines, it sounds as if they are taking all of that into account.(Numbers. current environment, and leadership) Leadership & plans being executed by that leadership seems to be referenced most heavily in the sections about 'Factors that could lead to a downgrade/upgrade.'

I don't think you could say leadership would be the major cause from this report for the downgrade. From this report, the most you could say is it would be an equal cause to the numbers and current environment. I'm not saying that the statement of leadership being the major cause is true or false, just commenting about what would be a justifiable statement from simply reading the Moody report.

That's kind of like saying, our football coach is great, we keep going 4-8 because we have bad recruiting, bad team strategy and a bad offensive philosophy. But it's not our coach...

Organizations fail for a pretty small number of reasons - inadequate team, bad overall strategy, failure to provide a product people want and poor operations. All those things are the responsibility of leadership. Just like winning is the coach's job. If you say, we have a bad strategy, an inadequate team and a product people don't want, you don't have to say leadership is not good enough, anymore than you have to say a coach is bad after a string of 4-8 years.

What the Moody's report makes clear is that they don't think TU will stay at its current level (much less improve). That's a leadership issue as surely as 4-8 is a coaching issue. And that's what Moody's article on the importance of leadership says.

 

[HuffyCane]

Then your beef is with the school and the Board, not Dr. Clancy and the Provost or the switch in strategies. Moody’s began downgrading TU’s debt under Stead.

 

[chito_and_leon]

Then your beef is with the school and the Board, not Dr. Clancy and the Provost or the switch in strategies. Moody’s began downgrading TU’s debt under Stead.

It's clear to everyone that the Stead approach was not sustainable and changes are needed. But that doesn't in any way say that the current leadership or strategy are right. Moving from one crap strategy to another isn't the answer. What we've done is like replacing Blankenship with Montgomery. We have a history of these "out of the frying pan, into the fire" transitions in the last 15 years or so, so it shouldn't be a surprise that we managed one at the senior leadership level, too.

You do raise a strange and bizarre point - the number of people who support TU Committed because the prior strategy was unsustainable. Like "current trends are not sustainable" is in any way an argument for any particular approach, which of course it is not. Having to do something different does not in any way mean we need to do this particular thing. It's a bizarre logical fallacy that a lot of people seem to have adopted. Part of our post-thinking society.

 

[TulsaAM]

Best friend does the bond thing for a living, the downgrade is really bad news for TU. What TU needs is a charismatic president who can wine and dine the money bags while having beers with the blue collars. Someone young enough to have the energy to make things work with the wisdom of experience. In short, another J. Pascal Tywman.

We are chasing a purple squirrel though. The endowment may need to take a bite and get some illiquidity to help bring in the right person.

 

[HuffyCane]

It's clear to everyone that the Stead approach was not sustainable and changes are needed. But that doesn't in any way say that the current leadership or strategy are right. Moving from one crap strategy to another isn't the answer. What we've done is like replacing Blankenship with Montgomery. We have a history of these "out of the frying pan, into the fire" transitions in the last 15 years or so, so it shouldn't be a surprise that we managed one at the senior leadership level, too.

You do raise a strange and bizarre point - the number of people who support TU Committed because the prior strategy was unsustainable. Like "current trends are not sustainable" is in any way an argument for any particular approach, which of course it is not. Having to do something different does not in any way mean we need to do this particular thing. It's a bizarre logical fallacy that a lot of people seem to have adopted. Part of our post-thinking society.

I’m still waiting for any better alternatives. I’ve heard none, especially from the “this is a bad idea but I need unlimited funds to teach nonexistent students philosophy and Portuguese until you find a better idea I like” crowd.

 

[TulsaAM]

I’m still waiting for any better alternatives. I’ve heard none, especially from the “this is a bad idea but I need unlimited funds to teach nonexistent students philosophy and Portuguese until you find a better idea I like” crowd.

At this point, just try something new. Use those high powered faculty brains to look into the future of education and take a chance. Increase scholarships for TCC students in STEM, adopt a graduating class at a local middle school every so often, take Gilcrease international... yep, marketing is how you get out of this. In the end the piece of paper from TU means the same as the one from NEO. I know, my kid with the associates from community college is making twice the expensive Catholic private school grade for 1/10 the cost.

Heck, host a wold of outlaws event at Skelly or ring in grade school kids to do over night stays at Gilcrease or camp on The U. You have to win the hearts and minds of the locals again. We lost all the momentum from the Nolan success that brought a sense of family to Tulsa, we need to do that again. Restart the great raft race, try an E Sports team, or Jamacian Bobsledding, whatever.

Knock down a building and sell the bricks, partner with Spartan to offer a bachelor's in aviation sciences. Make a difference in the community again and market the crap out of it.

 

[HuffyCane]

Best friend does the bond thing for a living, the downgrade is really bad news for TU. What TU needs is a charismatic president who can wine and dine the money bags while having beers with the blue collars. Someone young enough to have the energy to make things work with the wisdom of experience. In short, another J. Pascal Tywman.

We are chasing a purple squirrel though. The endowment may need to take a bite and get some illiquidity to help bring in the right person.

An interesting tidbit was Dr J (who probably hated that I called him that as a student) didn’t really have that much experience when he was named President at 37. He was President 22 years and died at 55 looking like he was 77 from ridiculous smoking. I would bet, conservatively, 3 packs a day.

His expertise had external boosts. He had the benefit of two very rapid and profitable oil booms and a growing, rather than shrinking, Lorton fortune. Tulsa was a different town with different prospects and a different relationship with OKC and Washington. The OK brain drain wasn’t a thing yet.

Clancy can wine and dine the money. He’s arguably too close with local money whose ties to TU are narrow, contracting, and perhaps expiring in some cases. A better profile nationally bringing in money from other unrealized sources is his goal and the only way out for TU, but he lacks the traction at times to get there. Some of that is lack of personal traction other times it’s TUs size or Tulsa’s location. A Donna Shalala is what TU needs, not Dr. J. But that would mean spending more on a President than a football and basketball coach combined and perhaps looking beyond the short term interests of some. That could prove aggressive and problematic for a new high risk strategy. One thing is for sure, both that approach and the current approach are better than hiring the fifth most qualified person amongst the people from SMU who applied for the job (Orzak).

 

[TulsaAM]

:stuck_out_tongue_winking_eye::stuck_out_tongue_winking_eye::stuck_out_tongue_winking_eye::stuck_out_tongue_winking_eye:If Tulsa hired Donna Shalala I would disassociate myself from the school in every way possible, but I see where you are coming from. Maybe if they hired Rush Limbaugh

 

[chito_and_leon]

I’m still waiting for any better alternatives. I’ve heard none, especially from the “this is a bad idea but I need unlimited funds to teach nonexistent students philosophy and Portuguese until you find a better idea I like” crowd.

LOL, this is the kind of "logic" that makes you want to rip your own eyeballs out of your head. The admin gives us a steaming turdburger for a plan. Your point is that the faculty - a bunch of novices with no data, no resources, no professional support and zero experience running a university - haven't done better. But hold on - just because a bunch of amateurs with no expertise and no support can't do better doesn't mean NOBODY can do better. By your logic, we could ask a few law school professors to build a playbook and offensive strategy for the football team and say "the professors didn't come up with anything better than Monty so we have to keep Monty and his offense." Of course that's insane - the professors can't do better but a lot of, say, actual football coaches could. The solution is to fire Monty and hire a competent coach. Similarly, the faculty might not come up with a better plan than the Gerard and Janet turdburger, but actual competent university administrators could. We just need to dump the deadweight and get some real, competent leaders (both in football and at the university level).

 

[chito_and_leon]

didn’t really have that much experience when he was named President at 37. He was President 22 years and died at 55.