Yale University got the green light yesterday to bring $800 million of tax-exempt bonds to market next month, though the offering is expected to be considerably smaller.
The Connecticut Health and Educational Facilities Authority board yesterday approved the deal, which is likely to include about $460 million of new-money bonds and $90 million of refunding bonds for the university.
CHEFA expects the fixed-rate bonds to be marketed in the first or second week of February. Retail investors will be offered $150 million of bonds with shorter maturities the day before institutional pricing.
Barclays Capital and JP Morgan will senior manage the deal that will likely include a combination of serial and term bonds with maturities from five to 45 years. The bonds will have different call dates ranging from five to 10 years.
Hawkins, Delafield and Wood LLP is bond counsel and Public Financial Management Inc. is financial adviser.
Phone calls and e-mails to Yale’s vice president for finance and business operations, Shauna King, were not returned yesterday.
Yale has approximately $2.2 billion of tax-exempt debt and $1 billion of taxable debt outstanding, according to the issuer. The university sold $1 billion of taxable, five-year notes to take out $560 million of taxable commercial paper and provide working capital in November. Yale has sold $1.64 billion of bonds since 2000, according to Thomson Reuters.
The Ivy League school plans to use the bond proceeds to finance dozens of capital projects on its New Haven, Conn., campus, including renovations to numerous buildings and new construction of residential and theater facilities, according to a Tax Equity and Fiscal Responsibility Act hearing notice.
According to the offering memorandum for the November note deal, the university expects to spend $646 million on capital projects in the current fiscal year and $300 million in fiscal 2011.
“They are trying to time the borrowing with the need for cash for the projects they are financing and they feel the rates for fixed-rate debt are favorable at this point,” CHEFA executive director Jeffrey Asher said in an e-mail.
Standard & Poor’s and Moody’s Investors Service rate the university’s outstanding debt triple-A with a stable outlook.
In a November rating report, Moody’s cited as positives the institution’s “superior financial resources,” extraordinary student demand, a 7.5% selectivity rate in admissions, consistent cash flow from operations, and adequate internal liquidity.
As challenges, Moody’s cited a high reliance on investment gains and income to cover 43% of operating expenses and the need to balance investment strategies with liquidity and risk-management priorities.
Like many higher education institutions, Yale’s endowment took a hit in the financial downturn.
According to audited financial statements for the fiscal year ending June 30, 2009, the value of the Yale’s endowment shrunk to $16.68 billion from $23.61 billion at the end of fiscal 2008.
Part of that drop is from an increased reliance on the endowment to fund operating expenses. Investment income was the university’s largest single revenue source in fiscal 2009, accounting for 43% of revenue.
The university used $1.16 billion of endowment assets for operating expenses in fiscal 2009, an increase from $850 million in fiscal 2008 and $684.5 million in fiscal 2007.
“The loss in value of their endowment is a concern for us but there are enough credit strengths still at the university that in our opinion they still warrant the triple-A rating,” said Standard & Poor’s analyst Jessica Matsumori.
Those strengths include “impressive demand in their academic program” and “strong financial performance,” Matsumori said.
A Yale spokesman said in an e-mail that the university is not among the roughly 40 higher education institutions that are being audited by the Internal Revenue Service as part of an examination of the financial and business practices at tax-exempt colleges and universities.
Harvard University disclosed in a recent official statement that it was being audited.
