Illinois Community College, With Rare Triple-A, Set to Triple Its Debt

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CHICAGO - William Rainey Harper College - one of the nation's few triple-A rated community colleges - plans to enter the market as early as today with $153 million of general obligation bonds. The deal will triple the suburban Chicago school's outstanding debt.

The transaction comes as enrollment at Harper and other Illinois community colleges is expected to spike amid a weak economy. Such conditions historically spark interest in less expensive schools as recently out-of-work adults return to school for job training programs.

As the college's largest bond transaction to date, the $153.6 million sale is part of a recently approved $330 million, 10-year capital plan, one of its most ambitious plans ever, according to Judy Thorson, Harper's vice president of administrative services.

In addition to the bonds, officials plan to finance the plan with state and local money as well as possible federal stimulus funds and existing cash reserves. After this week's bond sale, the college's general obligation debt will total just under $197 million.

Siebert Brandford Shank & Co. is senior manager on the transaction with Banc of America Securities LLC acting as co-senior. Bond counsel is Chapman and Cutler LLP. The school's long-time independent financial adviser is Joanne Malinowski.

The bonds will be backed by Harper's unlimited-tax GO pledge and feature a final maturity in 2028.

The college selected Siebert after receiving 16 responses to a request for proposals issued late last year amid the credit crunch, according to Malinowski.

"We were looking for firms that had a good handle on current market conditions - that was particularly important at the time we were seeking proposals back in November and early December," she said.

Located northwest of Chicago in the relatively affluent village of Palatine, Harper enjoys a strong financial position that is anchored by a large tax base coupled with conservative fiscal management, according to Moody's Investors Service.

Moody's has assigned its Aaa rating to the upcoming bond issue, affirming the school's position as one of only two triple-A rated community colleges in Illinois and one of only a handful in the nation. Besides its main campus, Harper operates two smaller campuses and several extension centers in the area.

The college's largest revenue source is property taxes, and its main campus benefits from a tax base that totaled roughly $71 billion in 2007. Harper is located mostly in Cook County but also reaches into three adjacent counties. Next to property taxes, the school's chief revenue source is tuition and fees - which make up about 42% of revenue - and state aid, which makes up about 9%.

The college district includes O'Hare International Airport and the Northwest Tollway as well as a number of large corporate headquarters, including Sears Roebuck & Co. and Motorola, all of which anchor the area's commercial and retail growth. Even amid a declining economy, Moody's analysts said they expect the district to benefit from moderate long-term growth.

The school's financial position is supported by conservative fiscal management, analysts said. The policy has led to annual operating surpluses, which by the end of fiscal 2008 led to a general fund balance of $42.2 million, or nearly 47% of revenues, according to Moody's.

"Given ample reserves, a favorable enrollment trend, and prudent fiscal management, Moody's expects the college's financial position will remain commensurate with the highest quality Aaa rating," analyst Sarah Haradon wrote in a recent report on the new bond deal.

As part of its conservative fiscal planning, the school is forecasting future drops in state aid as it plans its long-term budgets, Thorson said, adding that Harper currently relies on state funding for about 9% of its overall revenue, and the board is budgeting for less in the future.

"It used to be about $11 million [annually,] and we've been on a downhill slide all through the [Gov. Rod] Blagojevich years. That will continue and that's factored into our long-range plan," she said. The governor took office in early 2003 but faces an impeachment trial in the state Senate next week that could lead to his removal.

The bond sale - which 56% of voters approved in November, after a months-long publicity blitz by the college - comes as officials are preparing for an enrollment spike starting next year.

Estimated enrollment in 2009 is 9,815, which reflects an annual 2.5% increase since 2004. But a recent survey indicates that enrollment could rise as much as 4% starting next fall, according to Thorson.

"Community colleges tend to be countercyclical in terms of the economy," she said. "As the economy gets worse, enrollment rises. People's college funds have dried up with the market, and so people who might have been thinking about going away to a four-year school now wonder whether it wouldn't make more economic sense to do the first two years at a community college and then go away. We are preparing for that."

Harper's $330 million, 10-year campus plan will finance partial or full renovations at many of the 40-year-old college's buildings.

"This is probably our most ambitious master plan at least in the 12 years since I've been here," Thorson said. "A lot of it is driven by the age of the facilities. Enrollment is certainly growing and that's also an issue."

Harper plans to issue another $3.5 million of taxable limited-tax GOs in mid-February as part of its annual issuance to support technology projects. Like all the school's taxable debt, the bonds will mature in three years.

The non-referendum debt taps into the college's statutory $2.1 million debt-service extension base, which officials try to keep fully leveraged, Thorson said.

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