Washington State University received an $11.2 million cash benefit by repaying some of its existing bond debt and plans to set this money aside to deal with the operational and financial impacts of the COVID-19 pandemic in Classes.
“Part of financial responsibility is making sure we explore all potential options,” said Stacy Pearson, vice president of finance and administration. “We determined that we could make a repayment, which is essentially a refinancing of our debt, without increasing our overall debt payment or extending the term of the payments.”
The savings are due to lower refinancing rates on outstanding debt as well as the issuance of new debt at lower rates.
Each year, WSU and its consultants review existing bond debt to determine if it can be repaid and if doing so would result in significant net savings. That was the case this year, at a time when it’s vital for universities like WSU to have cash on hand to ensure budgets are maintained amid falling revenues and planned reductions in state funding.
“This money is going to be parked in central reserves to deal with future surprises resulting from the pandemic,” Pearson said.
The university sold general revenue bonds with a combined value of $110 million and is expected to pay off new debt incurred within two years. The WSU took action ahead of Election Day to mitigate any potential market impact.
Despite the economic challenges of the pandemic, WSU’s bond ratings from Moody’s as well as Standard and Poor’s have remained consistent with their pre-pandemic ratings, primarily due to the success of the three-year fiscal stimulus effort. Demand for the bonds has been strong among investors even as many other universities test the market with their own offerings.
WSU opted not to sell its general tax obligations beginning in 2013 as previously planned because the savings did not meet the university’s 5% savings threshold.
The WSU Board of Directors approved these actions at its last meeting in September. Pearson will present the results of the bond redemption and sale to the Board of Regents when it meets next week.
“It’s one of the tools we use to protect our financial balances in the current fiscal year when we lose revenue,” Pearson said.
The university has also taken steps to control costs by asking the department’s budget for a 10% cut for this fiscal year. Several WSU executives have also taken pay cuts to help offset the drop in revenue.
The university has been praised by its consultants for blacklisting its operating budget for the Financial year 2019. It was the first time since 2013 that the university did not spend more of its operating budget than it received. Advisors recommend WSU continue to build its cash reserves and seek to recoup revenue in the next fiscal year.
