WSU Case Study
Updated: Sep 16, 2019
One particular public-private partnership (“P3”) transaction that demonstrates the breadth and depth of our expertise took place at Wayne State University (“WSU”), a public University located in Detroit, Michigan. For the last 24 months, Blue Rose has advised WSU throughout the pre-procurement, procurement, negotiation, and implementation/execution of the P3 transaction. More specifically, Blue Rose advised on the RFP process and developer interviews, the selection of a developer (Corvias), the negotiation of critical business elements of the service concession agreement (“SCA”) and other operative financing agreements, preparation for rating agency and investor site visits, and the structuring and execution of a privately placed $307.5 million taxable note. Ultimately, this critical off-balance sheet financing achieved financial close with Corvias as the P3 concessionaire on November 30, 2017. Below we outline some of the issues our team encountered in executing the WSU transaction.
Blue Rose was engaged to serve as a P3 Advisor and a member of the Steering Committee for the much-needed addition and modernization of WSU’s housing facilities. While we were a full member of the Steering Committee, Blue Rose reported directly to the University’s Chief Financial Officer (William Decatur) and Senior Associate Vice President of Finance, Treasury and Budget (Diana Goode). Importantly, our role to was to advise WSU’s senior finance administration, not the University’s housing officer. This unique role allowed us to exercise independent judgment as a fiduciary to the University at the highest level, and also required a demanding time commitment by the Blue Rose team to serve the University’s needs throughout this engagement.
During our 24-month engagement, Blue Rose advised WSU through many challenges to accomplish financial close on the Corvias partnership. Originally, WSU was scheduled for financial close in May of 2017. However, due to investor issues related to the University System of Georgia (“USG”) / Corvias P3 that surfaced in the spring of 2017, WSU was effectively shut out from market access due to WSU’s transaction being structured so similarly to USG and utilizing the same firm as concessionaire. At Blue Rose’s suggestion to open up the potential investor base, WSU and Corvias agreed to replace the original Private Placement Agent in June of 2017, and proceeded to engage Citigroup as the new Private Placement Agent. Citigroup, WSU, Blue Rose and other advisors gathered information about the USG P3 to determine if WSU’s current plan of finance was still executable given the investor disruption that had occurred, and, if so, what premium interest rate might need to be paid due to investors’ perception of risk in light of their recent experiences with the USG transaction.
With the market knowledge that was gathered, WSU had the benefit of recent insight provided by the USG P3. We closely compared the USG P3 to WSU and found we could make structural changes prior to approaching investors and the rating agency to address any potential concerns or issues they might raise.
Specific differences between the USG and WSU transaction are shown below and were included in the WSU Investor Presentation.
a) Privatization of Student Residences – While WSU considered privatizing less than all of its housing, we determined this option was sub-optimal, and created unacceptable conflicts and internal competition. By placing 100% of its housing, including the new Anthony Wayne Drive project, into the P3, it would ensure a long-term alignment of interests between the University and its P3 partner, Corvias. Investors agreed and commended this feature.
b) Marketing of Student Housing – WSU owns the responsibility of marketing all campus housing, thus there are no conflicts of interest or conflicting messages. Again, both parties are aligned in a singular effort to ensure a successful housing operation.
c) OpEx – Determining the true operating expenses within the housing system required significant data gathering and testing and proved to be a highly involved and technical exercise for all parties. The final proforma model was Version #136. The clarity achieved from this deep dive and reiterative process gave all parties a tremendous amount of confidence in the prospective cash flows and financial viability of the project. This confidence came through during all investor on-site and road show meetings. It also gave WSU confidence to subordinate 50% of Retained Services to debt service, with full expectation to be paid (see below).
d) WSU Retained Services Subordination – In order to achieve requisite Debt Service Coverage, thereby satisfying investors and the rating agency, WSU committed to subordinate 50% of its Retained Services to senior debt service over the life of the SCA. WSU’s subordination clearly demonstrated commitment to the partnership, which instilled greater confidence and led to the successful financial close of the P3.
e) New Construction Component – The new Anthony Wayne Drive Apartments (841 beds) constituted a lower percentage (22%) of the total beds in the P3 (3,810) as compared to the USG P3 (new beds constituted nearly 38% of total P3). The lower percentage reflects the bed count upon completion of Anthony Wayne Drive, the demolition of the DeRoy Tower Apartments (405 beds), and the renovation of the Chatsworth Apartments (368 beds post renovation). The greater percentage of existing beds within the portfolio allowed for a higher level of predictability for revenue and operations in the early years and served as a risk mitigant for any construction delays or overruns.
Institution/Company Name: Wayne State University
Address: 5700 Cass Avenue, Suite 4900 AAB, Detroit, Michigan 48202
Contact Name / Title: Mr. Bill Decatur, VP for Finance & Business Services, Treasurer & CFO
Telephone/ Email Address: (313) 577-5580 / firstname.lastname@example.org
Contact Name / Title: Ms. Diana Goode, Senior Associate VP or Finance & Budget Telephone / Email Address: (313) 577-5426 / email@example.com