University of Cincinnati Readies Mixed $128M Deal

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CHICAGO — The University of Cincinnati Thursday will price $128 million of debt that includes a mix of new-money and refunding tax-exempt bonds, taxable Build America Bonds, and notes. Roughly half of the long-term borrowing is earmarked for the renovation of the university’s Medical Science Building.

RBC Capital Markets is the underwriter and Peck, Shaffer & Williams LLP is bond counsel.

The transaction features four series of debt, including roughly $87 million of BABs and $11 million of tax-exempt bonds, $19.6 million of notes, and $10.5 million of notes.

The offering statements states that the university is considering buying insurance to cover the long-term debt if it proves economically beneficial when the bonds price.

Moody’s Investors Service assigned an A1 rating to the long-term debt ahead of the sale. Standard & Poor’s rated it A-plus.

The transaction comes about two years after the school completed a 17-year capital plan that relied on $1.4 billion of debt issued since 1991. Since 2008 it has borrowed roughly $25 million of new money while refunding $280 million, according to Thomson Reuters.

With $1.24 billion of debt, the university is highly leveraged with thin liquidity, analysts warned. The debt burden is mitigated by an aggressive debt amortization schedule, under which $139 million will be retired through 2012.

The school’s $110 million of outstanding variable-rate debt, which includes its bond anticipation notes, introduces additional risk, Moody’s said.

Despite its high debt burden, the university is considered stable by credit analysts. With its main campus located a few miles from downtown Cincinnati, the school benefits from strong student demand — fall 2009 enrollment totaled nearly 40,000 — and is in the midst of a fundraising campaign that has raised $670 million towards its $1 billion goal.

The upcoming debt is secured by a pledge of the university’s general revenue, which totaled $495 million in fiscal 2009, according to bond documents. State aid, which accounts for 22% of total revenue, is not included in the pledged revenue. Maximum debt service on all the school’s outstanding debt, including this week’s issue, will total $88 million in 2018. Coverage of debt service that year would be 5.63 times based on last year’s general revenue.

The university is expected to borrow another $23 million to complete various capital projects over the next 18 to 24 months, Moody’s said. The Medical Science Building expansion is expected to cost around $250 million and go through 2014.

“The credit impact of any debt issuance will depend upon if operating performance is balanced, unrestricted financial resources move to a positive balance, the amount of debt paid, and debt structure,” Moody’s analyst Diane Viacava wrote in a report on the upcoming sale.

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