DALLAS - Santa Fe is preparing to defease the debt of the College of Santa Fe under a plan to rescue the state's oldest private college.
After negotiations with the Royal Bank of Canada and Radian Asset Assurance to drop a swap termination payment on the college's $38 million of variable-rate debt, the Santa Fe City Council last week approved a $30 million bond issue to buy the CSF campus.
Under the current plan, the bonds will actually be issued by the New Mexico Finance Authority during the week of Sept. 14, with the proceeds to be lent to Santa Fe for acquisition of the campus, said Dave Millican, director of finance for the city. The final maturity is expected to be 27 years.
Banc of America Securities, JPMorgan and Piper Jaffray & Co. are the underwriters on the deal.
In lengthy negotiations, RBC and Radian agreed to drop the swap termination payment that would have been $6.5 million when talks started and was more recently about $3.5 million, according to Millican.
The college has $1.1 million in remaining project reserves from a previous bond issue that will go toward defeasing the debt, he said. The school's bond reserve fund has been exhausted.
New Mexico is adding $11 million to the $30 million to keep the school operating.
Santa Fe will apply $19.5 million of the bond proceeds to buy the campus and will use an additional $15 million for improvements to the property. There is also funding for reserves and other city costs. The deal also includes approximately $3.5 million dollars in soft costs and reserves.
Under the plan approved by the City Council last week, Laureate Education, a Baltimore-based higher-education corporation, will lease the campus for $2.35 million per year on a 27-year lease. The lease payments would back the city's debt.
Laureate would also stake $20 million of equity to absorb losses in the early years. The campus is expected to host only about 100 students this fall. Under the plan, the Santa Fe Community College would also use the campus.
Parcels of land would also be sold to the state, bringing in $6 million. Gov. Bill Richardson has allocated $4 million and an economic development grant that could bring an additional $2 million.
"I will continue to work closely with the city and our other partners, Laureate Education and the Santa Fe Community College, to ensure that we have a first-rate institution that continues to attract students from all over the world, creates educational opportunities for the youth of New Mexico, and spurs economic growth in Santa Fe and for the state," Richardson said after the City Council approved the plan.
The college, faced with closure this fall, was facing time pressures on two fronts. With revenues collapsing, it faced default on its bond payments within weeks. Closing the campus would also have cost the college its accreditation, which is attached to the institution, not the property. Laureate is in the process of requesting transfer of the College of Santa Fe's accreditation.
"It's not often that you get a chance to save a 150-year-old college," Millican said. "So we were glad we had the opportunity and the ability to do it."
