Emory Report

September 27, 1999

 Volume 52, No. 6

Emory receives high bond ratings, borrows $295 million to pay for new capital projects

Emory has received favorable ratings on bonds that will be issued late in September on the University's behalf to fund construction projects. Emory received an Aa1 rating from Moody's Investor's Service and an AA rating from Standard & Poor's (S&P) on $295 million worth of bonds. The money is being borrowed to finance major construction projects including the Whitehead Research Center, the Physical Sciences Center and the new nursing school.

"Receiving these high ratings saves Emory money in that it lowers our cost to borrow," said Frank Huff, vice president for finance and treasurer. "We work very hard to obtain the highest rating so we can borrow at the lowest rate. It's a real feat that we have been able to achieve these ratings in the market when other universities with medical centers are receiving down ratings."

In this latest offering, Emory increased its outstanding bond debt by 50 percent and will soon double its outstanding debt. "We have a number of ambitious projects and will go back into the bond market next year to borrow for the Crawford Long expansion," said Huff. Emory has been issuing and paying off debt since 1982.

In an extensive public report issued Sept. 7, Moody's said its ratings for bonds issued for Emory were based on several factors, including:

  • very large financial cushion, "albeit highly concentrated in Coca-Cola common stock."
  • favorable operating margins, "which we expect will be fueled by the premier regional position enjoyed by the large and growing health care component."
  • "stable-to-growing" national reputation in education and research.

"Emory's strength in enrollment management and academic programs, especially emerging cross-school programs, appealed to the reviewers," said Provost Rebecca Chopp. "We are making good use of our strong faculty, our fine facilities and our fiscal resources."

Moody's went on to say its ratings carried a stable outlook and discussed a variety of factors that influenced its ratings. "The University's vast endowment is expected to continue providing ample resources to support debt service and expand its academic programs, despite the volatility risk stemming from an investment concentration in a single stock. Expendable resources will continue to favorably cushion debt following the current and expected future debt issues."

Both Moody's and S&P wrote extensively about the role of health care in Emory's financial picture. S&P wrote: "The majority of Emory's revenue and operating surpluses are derived from its two Atlanta-based hospitals that have performed well financially but will be challenged to react quickly to ongoing reimbursement, cost and competitive pressures."

Moody's report provided an extensive analysis of the financial picture of health care at Emory. "Although Moody's believes that there are risks associated with Emory's large health care exposure, Emory's health care operations have demonstrated solid and stable financial history for several years. Unlike other major metropolitan markets, EUH benefits from its position as the only academic medical center in Atlanta. As a result of Emory's reputation as a premier academic and clinical provider, EUH draws from a wide service area." Moody's also noted that the hiring of a well-seasoned senior management team at Emory HealthCare is indicative of Emory's firm commitment to the financial and strategic success of its health care operations.

Most of the bonds, except for $16 million that will be used to finance a parking lot at Crawford Long Hospital, were issued as tax-exempt--that is, the holder does not pay interest on the income received. These are serial bonds, some of which reach maturity every year for 30 years; overall, Emory is paying 5.67 percent interest.

"Since interest rates have gone up, it costs us more to borrow now than it did a year ago," said Huff.

"In this latest bond issue, $35 million was purchased by Georgia citizens through underwriters such as Paine-Weber, SunTrust and Robinson-Humphrey," said Huff. "The remainder was purchased by institutional investors such as trust departments, other bank purchases and large mutual funds. Emory can't issue municipal bonds; that is reserved for state and local entities. So we go through the Georgia Private College and University Authority, as do all the other private schools in the state. It's a quasi-state agency."

In summary, S&P said, "The outlook reflects expectations that Emory will continue to build strong liquidity levels and maintain good financial operations. If Emory continues to build resources, manages its new debt program and successfully weathers health care industry risks, including reimbursement and competitive pressures, a higher rating could be warranted."

--Jan Gleason

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