Michigan State University is refinancing the roughly $90 million of debt left on the original bonds it issued to settle the lawsuits associated with former athletics doctor and convicted sex abuser Larry Nassar.
In an offering dated earlier this month, the school’s board of trustees issued $91.4 million in new bonds for the purposes of paying off its original borrowing.
The school has now restructured all of the $491.8 million debt it took on to settle claims against Nassar, the longtime Spartans and USA Gymnastics doctor who perpetrated what is widely considered the worst sex-abuse scandal in sports history. Michigan State has paid off about $101 million and still owes more than $400 million of principal.
This was the plan all along, according to university spokeswoman Emily Guerrant. With a short window back in 2018 to put up the money for the settlement, the school secured a short-term variable-rate bond issuance. The school paid off some of the debt with money from its lawsuits against insurance providers (it originally sued 13 providers for failing to honor the terms of their coverage regarding claims against Nassar), and has now moved the rest of the debt into offerings with more favorable terms.
Nassar, who spent nearly two decades employed at Michigan State, pleaded guilty in 2017 to molesting women under the guise of medical treatment. He was sentenced on three separate counts of criminal sexual conduct and will spend the rest of his life in jail.
In 2018, Michigan State agreed to pay $500 million to settle claims from more than 330 women who said they were assaulted or abused by Nassar. That total, negotiated privately with the help of a mediator, included $425 million paid to the existing accusers, and $75 million to be set aside for future claims.
The university directed about $8.5 million from a previous fund toward that settlement total, and funded the rest through a $491.8 million bond offering that was sold directly to Royal Bank of Canada. While the terms had been loosely agreed upon seven months prior, Guerrant said the schools had just 10 days from the settlement’s late 2018 signing to pay the $500 million into a court-created fund.
Because those bonds were sold directly to RBC instead of through the more public municipal bonds process, the exact payment terms aren’t clear—the interest rate is redacted in the offering document available through public databases. The documents do show that the variable rate is based on the SIFMA Municipal Swap Index, which reflects current rates being paid by high-quality issuers in the market, with the school paying an additional interest on top of that. Though that initial offering with RBC technically ran through 2033, the terms say that Michigan State had to offer to buy back a portion of the bonds each year. Almost immediately after placing them, the school began floating new bonds to pay them off. The school’s plan, according to Guerrant, was to pay off that $491.8 million in debt with a combination of new debt and money from the insurance lawsuits.
In February 2019, three months the settlement was paid, the school issued $323.07 million in new fixed-rate bonds, solely for the purpose of paying off an equal portion of those RBC bonds. Most of those bonds pay a coupon—an interest rate paid to bond holders—of 4.495%, and are paid off in 2048.
Then, earlier this year, the school settled with a number of those insurance providers. It used about $85 million of that money to pay off more of that original RBC bond issue, leaving about $90 million remaining from the original bonds.
Now the school is refinancing the rest of that debt. The school issued $10 million of commercial paper—debt that matures in less than a year—and floated the remaining $80.9 million into a new bond offering, which matures in 2031 with a fixed rate of 2.02%. That low yield is a result of strong interest in the bonds, which sold for more than face value.
The size of the Nassar settlement was a record among sex-abuse scandals in sports; for reference, Penn State paid around $109 million to a much smaller group of accusers of former football coach Jerry Sandusky. The fallout led to the resignation of MSU President Lou Anna Simon and Athletic Director Mark Hollis, plus the resignation of at least one board member over the school’s refusal to fully account for its role in the scandal.
