Florida university makes a public municipal market debut

A fast-growing Florida university that began as a for-profit career education provider is using municipal bonds to power its continued transformation as a not-for-profit.

A $304 million bond deal that priced Wednesday will fund a new dormitory and classroom building at Keiser University’s 10-year-old residential flagship campus in West Palm Beach, while paying off bank loans that have fueled its growth at campuses across the state.

On Tuesday Dan Froehlich, managing director at underwriter D.A. Davidson, said he and colleagues were responding to many queries about the deal. He said interest had come from bond funds specializing in speculative-grade, Florida and university bonds.

“D.A. Davidson is very excited to be the underwriter for Everglades’ inaugural public bond issue,” Froehlich said. “It is a substantial university system in Florida and we think they have a great story to tell.”

The borrower on the deal is Everglades College, Inc., a Florida not-for-profit that operates both Keiser University and Everglades University.

S&P Global Ratings rated the bonds BB-plus with a stable outlook.

“While one is initially struck by the unique operating model for a college, better demand and positive operating trends aren’t seen much in the higher ed space,” said Joseph Krist, publisher of Muni Credit Today. “If they could just get some more cash on the balance sheet, they would probably be investment grade.”

The deal was priced through Florida’s Higher Educational Facilities Financing Authority as conduit issuer.

S&P pointed to Everglades College’s “low financial resource ratios and a significant amount of pro forma debt, with cash and investments equal to 33% of operations and 52% of pro forma debt as of Dec. 31, 2024.” It noted weak selectivity and retention rates compared with those of its peers. The ratings agency mentioned the institutions’ high dependence on students for revenue, with tuition, fees and auxiliary revenue making up 96% of fiscal 2024 revenue.

For positives, S&P said Everglades has a history of positive operations, with a “robust” surplus of 7.4% in fiscal 2024 and similar results expected in fiscal 2025. Everglades benefits from a low level of deferred maintenance, represented by an average age of plant of 5.5 years.

Everglades College, Inc. does business as two schools: Everglades University and the much larger Keiser University.

Bond proceeds will be primarily used to build a 709-bed student housing facility on Keiser’s flagship West Palm Beach campus; a 95,040-square-foot science, technology, engineering and math building on the same campus; and to refinance $208 million of existing bank debt.

Keiser describes itself as Florida’s largest not-for-profit university, with 20,000 students and campuses in 18 metropolitan areas. It offers 46 associate degrees, 58 bachelor’s degrees, 47 master’s degrees, and 19 doctoral degrees.

Everglades University has about 3,700 students, according to the limited offering memorandum for the deal. It specializes in a few educational areas like construction management and aviation.

Keiser was launched in 1978 in Fort Lauderdale as the Keiser School, a for-profit career education provider, according to the LOM.

Its founders, Arthur and Belinda Keiser, and their son Robert bought what became Everglades College in 1998, converting it to a nonprofit in 2000.

That institution bought Keiser University in 2011, allowing it to operate as a nonprofit. From there, according to the LOM, its growth has included the creation of the flagship residential campus in West Palm Beach that will grow with on-campus housing and classroom space financed with the deal.

The bonds will be Everglades College, Inc.’s general obligation. The institution is pledging a first and senior perfected security interest on its gross revenues, subject to certain permitted encumbrances. It is making a negative pledge of some of its real estate assets. Finally, there will be a debt service reserve fund funded with its unrestricted cash.

The borrower had $230.4 million of bank loans outstanding as of Dec. 31, of which $208.3 million will be refinanced with bond proceeds, according to the LOM.

The bonds were sold with the requirement Everglades retain at least 75 days cash on hand and maintain a debt service coverage ratio of at least 1.1 times, tested annually.

The borrower expects to have 237 days cash on hand this fiscal year and 4.5 times debt service coverage in fiscal 2026.

The bonds were sold only to institutional buyers and the smallest denomination offered was $100,000.

“Yield has many fans in this environment,” said John Hallacy, president of John Hallacy Consulting LLC. “Weak credit metrics could translate into a workout in the future. But Florida continues to grow and will enlarge the candidate pool. Prospective yields will reflect the risks.”

A bit over half of ECI’s students take classes on campus and the remainder take classes online.

S&P said its biggest credit concern with ECI was its “very weak” financial resources ratios, “with fiscal 2024 cash and investments making up 33% of operations and 52% of pro forma debt, compared to the speculative-grade medians of 58% and 102%, respectively.”

ECI had cash and investments of about $202 million as of Dec. 31., 97% of which was unrestricted. ECI doesn’t have an endowment.

ECI’s total operating revenue declined 3.8% to fiscal 2024 from fiscal 2021. Its full-time equivalent enrollment increased 21% in the same period.

Keiser’s matriculation rate of 61% in fall 2024 compared favorably to those of its peers, S&P said. Student retention was at 71% in fiscal 2024 compared to fiscal 2023.

ECI expects its debt service coverage ratio to rise steadily from 4.05 times in 2025 to 6.05 times in 2029.

The ECI bonds have come to the market during a difficult time for the nonprofit higher education sector. Fitch Ratings in January said it was maintaining a deteriorating outlook on the sector, “driven in part by a softer operating environment” that includes reduced financial flexibility, a fragile international enrollment pipeline, and an expectation for increased consolidation and college closures.

“The college landscape is very challenging right now,” said John Mousseau, president and CEO of Cumberland Advisors.

“The demographic shifts are hitting lower-tier colleges hardest. At least this is not in an area that has a stagnant population so that’s going for it,” he said.

“The bigger backdrop is that many people are questioning the value add of lower-tier colleges given the murky economic outlook and return on investment to go to school,” Mousseau said. “Most of these schools have little financial cushion from endowments and hence may be in a tougher place financially more swiftly in case of an economic downturn.” Mousseau said Cumberland doesn’t buy speculative grade bonds.

Fitch said in May higher education was one of two sectors that federal policy shifts were likely to lead to elevated rather than moderate credit impacts. The strongest impacts are likely to come from federal spending cuts and financial market volatility.

“To the extent that higher-tier colleges are expanding choices and trying to attract more applicants, this can produce a beggar thy neighbor atmosphere where lower-tiered colleges end up in [a] negative cycle of cutting admissions requirements, which lowers the average scores and boards, which hurt the future rankings of colleges,” Mousseau said.

This week’s edition of Municipal Market Analytics’ Default Trends said the higher education sector had the greatest number of defaulters of all 32 municipal sectors in 2024 and has been tied with five other sectors in fifth place in 2025 so far. The higher education sector was third in impairments in 2024 and sixth in 2025 among the 32 sectors.

On the deal, Nabors, Giblin & Nickerson, P.A. is the bond counsel, Kutak Rock is the underwriter’s counsel and UMB Bank, N.A. is the bond trustee.

The deal priced with July 2035 maturities and 5% coupons yielding 5.05%, 6s of 7/2045 at 6.05% and 6.25s of 7/2055 at 6.25%.

The bonds are subject to call at par in July 2033.

“We had a very successful pricing today,” Froehlich said.