CHICAGO — The Ohio State University will enter the market Tuesday with $741 million of bonds to launch a $2 billion capital expansion program.
The school will follow the transaction two weeks later with $150 million of variable-rate debt, and is considering issuing $100 million of commercial paper.
The finance team expects to hold a retail order period Tuesday and take institutional orders Wednesday.
The Big Ten University —- one of the nation’s largest — will use proceeds from the sale to launch ProjectOne, a $1 billion expansion of the OSU Medical Center. The program is Ohio’s largest labor initiative and is projected to create up to 10,000 new jobs and 5,000 construction jobs.
“This is the largest bond offering in the university’s history, and the largest construction project,” said OSU spokesman Jim Lynch.
The school expects to issue another $927 million over the next five years as part of its capital program.
The planned new borrowing will increase the OSU debt load to $2.1 billion from $1.4 billion.
Tuesday’s sale includes $655 million of taxable Build America Bonds with a 30-year bullet maturity. It is the first time OSU has issued debt with a bullet maturity. The university has an enrollment of about 63,000, with 55,000 of that at its Columbus campus.
A pledge of general receipts, which includes most revenues except state aid, secures the bonds. Last year the school’s general receipts totaled $2.8 billion.
In addition to the $655 million of taxable BABs that mature in 2040, the sale includes $85.8 million of tax-exempt refunding bonds that mature serially over the next 15 to 20 years.
Morgan Stanley and Barclays Capital are joint book-running managers on the BAB series, and Morgan Stanley is sole book-runner on the tax-exempt debt. Bricker & Eckler LLP and Forbes, Fields & Associates Co. are co-bond counsel.
A third series consisting of $150 million of variable-rate bonds will be priced in two weeks. That borrowing, led by Bank of America Merrill Lynch, will refund $121 million of outstanding commercial paper and provide some additional new-money for the capital program.
Fitch Ratings assigned a AA rating with a stable outlook to the debt. Moody’s Investors Service and Standard & Poor’s rate the school Aa1 and AA, respectively, but had not released ratings on the upcoming borrowing as of Thursday.
The new debt will sharply increase the school’s future annual debt service, Fitch said. Maximum annual debt service will reach $665.4 million in fiscal 2041 — totaling 16% of the school’s fiscal 2009 operating revenues — due to the school’s decision to issue a 30-year term bond.
Despite the increased debt burden, OSU’s history of conservative fiscal management and its ability to refund if necessary mitigate the risk, said Fitch analyst Doug Kilcommons.
“We have no immediate concerns about this program,” he said. “Their strong margins will enable them to service the increased debt load.”
Other public schools considered strong credits, such as the University of Virginia, have also opted to issue BABs with long-term bullet maturities.