Budget Cut Worries Stall $115M Borrowing Plan For LSU

BATON ROUGE (AP) — LSU stopped nearly $115 million in planned borrowing Friday as investors pulled out of the deal amid concerns over the university's financial instability.

         The university cited "continued unpredictability of our state budget" in its announcement.

         "The deal blew up. You can pretty it up, but that's what happened … LSU pulled down the bond issue," said Treasurer John Kennedy. "Under normal circumstances, it would have been a pretty garden-variety, routine bond sale. But these aren't normal circumstances."

         The sale of bonds for upfront cash had been underway to refinance existing debt and save the university money, pay for new and renovated student housing and expand the student health center on the Baton Rouge campus, according to state financial documents.

         But when new worries surfaced this week about the university's credit rating and the threat of a possible bankruptcy filing, national investors backed out of much of the deal before the closing, Kennedy said. The university then scrapped the bond sale.

         "We believe this is the responsible thing to do, and we will reevaluate the offering once the state's financial picture becomes clearer," LSU said in a statement.

         The university didn't initially explain that investors balked, simply saying the bond sale had been postponed. Then after Kennedy's comments, LSU acknowledged in a follow-up statement that "it became evident there were concerns among investors."

         As the state grapples with a $1.6 billion shortfall, public colleges are threatened with deep cuts topping $600 million, up to 80 percent of their state financing, in the budget year that begins July 1. Gov. Bobby Jindal has proposed tax changes and other ideas to raise money to close some of the gap, but no agreement has been reached with lawmakers.

         Jindal chief of staff Kyle Plotkin suggested a solution would be found.

         "The bottom line is that there are options on the table to protect LSU and our universities, and we are confident that the budget will do that at the end of the day," he said in a statement.

         Any cuts would come after years of budget slashing across campuses.

         LSU System President F. King Alexander said this week that campuses, including the flagship campus in Baton Rouge, are exploring the steps required to file for "financial exigency," the equivalent of bankruptcy, in case cuts were so deep that exigency was needed.

         On Friday, the university stressed that it hasn't started filing for exigency.

         "President Alexander has not formally requested, nor has the LSU Board of Supervisors voted, to declare financial exigency. However, we are working together on a wide range of contingency plans in preparation for the final outcome of the budget process," Ann Duplessis, chair of the board, said in a written statement.

         But the possibility could have been enough to spook investors.

         Earlier this week, national credit rating agency Moody's Investors Services dropped LSU's credit outlook from positive to stable, raising concerns that Moody's could lower the university's credit rating if it gets hit with hefty budget cuts. A rating downgrade would cost LSU more to borrow money.

         "Put yourself in the shoes of an investor," Kennedy said, citing Louisiana's past cuts to higher education and the threat of even greater reductions. "Under those circumstances, would you buy our bonds?"

         Duplessis said university leaders "remain optimistic that the Legislature's concern for higher education will result in solutions that will protect LSU."

         – by AP Reporter Melinda Deslatte




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