CHICAGO — Purdue University in Indiana will enter the market today with $73.6 million of student fee bonds to refinance some of its variable-rate debt into a fixed-rate mode.
The Trustees of Purdue University will issue the bonds.
Barclays Capital is the lead underwriter on the transaction. City Securities Corp. and Cabrera Capital Markets LLC round out the underwriting team. Ice Miller LLP is bond counsel. John S. Vincent & Co. is financial adviser.
By refunding three series of outstanding variable-rate demand bonds, Purdue is hoping to lower its market and interest rate risks by swapping to a fixed rate and allow for capacity to take on additional variable-rate debt in the future, said James Almond, Purdue’s senior vice president for business services and assistant treasurer.
“We opportunistically look at trying to lower our average cost of capital, and when we started looking at where long-term rates are right now, it looks like an ideal time to be fixing those,” Almond said. “We’re securing some very attractive long-term rates and if the rates increase in the future, we’ve built some capacity on the variable-rate side.”
Of the three series of debt that will be refunded, two are backed by Purdue’s own liquidity, and one, for $14.5 million, has a standby bond purchase agreement, according to bond documents.
All the debt is payable by student fees, which includes tuition. Purdue has pledged to collect enough fees to equal at least one times the annual debt service requirement, as well any amount to be paid into a reserve fund and cover other obligations.
In fiscal 2009, the school generated roughly $574 million in student fees, providing more than 14 times debt-service coverage of the maximum year in 2014, bond documents show.
Purdue has roughly $943 million of debt, including its commercial paper program, of which roughly $160 million is variable-rate.
The school issued $235 million of new-money bonds last year, the most since at least 2000, according to Thomson Reuters. This year it plans to issue another $100 million of new money to continue to finance a series of renovations to its student residences and sports arena, Almond said.
In assigning an Aa1 rating to the school’s debt, Moody’s Investors Service noted the school’s ample liquidity, strong market position, and favorable operating margins, but warned that the additional borrowing for capital projects could strain its balance sheet in the future.
Moody’s also said the school benefits from Indiana’s move to reimburse it for a chunk of its student fee debt. In 2009, the state reimbursed Purdue $33 million, and has budgeted $34 million this year and $35 million in 2011.
“The state has consistently funded the full amount of fee-replaced debt service even during difficult economic times and Moody’s expects that going forward, the legislature will continue to appropriate sufficient funds to cover debt service on eligible student fee bonds,” analyst Leah J. Ploussiou wrote in a report on the upcoming bond issue.
Purdue’s main campus is located in West Lafayette. It is one of seven state-supported universities in Indiana and is a member of the Big Ten athletic conference. Its student population totaled 69,000 students in fall 2009. Another 4,600 students attend the Indiana University-Purdue University campus in Indianapolis.
