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Retail Gets First Crack at DuPage

CHICAGO — The top-rated College of DuPage in Illinois will hold its first-ever retail order period Tuesday for $105 million of mostly new-money bonds that will finance various building improvement and maintenance projects, including the completion of its Homeland Security Education Center.

The deal has two tranches, a new-money series for $96 million and a refunding of 2003 bonds for $9 million, according to college treasurer Thomas Glaser. The school is known as the College of DuPage but issues under its formal name of Community College District 502.

William Blair & Co. is senior manager and Bank of America Merrill Lynch is co-senior . Public Financial Management Inc. is financial adviser. Chapman and Cutler LLP is bond counsel and Perkins Coie LLP is underwriters’ counsel.

The borrowing is the first under a $168 million referendum approved last November by voters in the district, which serves an affluent region just west of Chicago’s Cook County. A debt restructuring in 2009 is allowing the college district to issue bonds approved in the 2010 ballot measure without a tax hike.

The finance team is structuring the sale this week with a repayment schedule that holds the college’s tax levy steady so it doesn’t need to seek an increase in its tax rate the next time it goes to referendum.

The Community College District joins other Illinois-based issuers in offering retail buyers a chance to purchase its bonds. In past years, the lack of a tax exemption on most Illinois debt from state income taxes hampered retail interest, but the attractive level of interest rates currently offered by municipal debt — especially stronger credits — has prompted the change.

Public comments during the college’s referendum push also drove its decision.

“Last summer, as the college was working on getting support for the referendum, one of the things we kept hearing from the public and the board was that the public wanted access to bonds,” Glaser said. 

Proceeds of the sale will help finance a $300 million capital improvement program that includes construction of new buildings at its main campus in Glen Ellyn, renovations to existing buildings at other locations, and maintenance of facilities.

A portion will finance the final costs of a new state-of-the-art security training center, one of the only such facilities in the country that allows for law enforcement to stage emergency situations, Glaser said.

The Homeland Security Education Center is a 61,100-square-foot building that will serve as a multi-jurisdictional tactical village to train regional and national emergency response agencies. It will house the college’s criminal justice and fire science programs, police department, and Suburban Law Enforcement Academy training center, according to the college’s website.

“We see the security industry as a real growth area for students,” Glaser said.

The facility is slated to open next month. It will also serve the training needs of suburban, state, and federal police as well as enforcement agencies such as the state police and the Federal Bureau of Investigation.

The college also will offer the facility to private companies, though its use will be limited so as not to run afoul of federal tax exemption rules on private use.

Ahead of the offering, Moody’s Investors Service and Standard & Poor’s affirmed the College of DuPage’s top ratings on $300 million of debt. The school has a full-time enrollment of 15,900 students and offers associate degree programs and other programs designed to prepare students for transfer to four-year undergraduate institutions. Enrollment has grown by 8.9% since 2007.

The district is promoting its strong financial profile and limited need for state aid to offset interest rate penalties many Illinois issuers have faced over the last year due to the state’s fiscal struggles. Market participants said that even for a triple-A credit, penalties can range from 20 to 50 basis points.

“We deliberately budgeted last year on receiving only four of 12 state payments,” Glaser said. The state eventually made good on all its payments, though late.

Moody’s cited risks associated with state aid delays and statutory tuition rate limits as the college’s central challenges. Property taxes, tuition and fees, and state grants are the largest operating revenue sources, accounting for 49.1%, 40.4%, and 8.9% of total general fund revenues, respectively, in fiscal 2010.

The college has strong alternative liquidity to manage through payment delays. Cash and investments in fiscal 2010 totaled $74 million, providing 194 days’ cash on hand, with additional liquidity provided by $8.1 million in a working cash fund and a $7.5 million unrestricted balance in an auxiliary fund.

The rating is supported by a “substantial supporting tax base, very strong wealth and income levels, a very strong financial position paired with good financial management practices and procedures, and low debt burden as a percentage of market value,” Standard & Poor’s wrote.

The new-money debt is secured by the college’s full faith and credit unlimited-tax pledge. The refunding bonds are structured as alternate revenue source bonds secured by the college district’s pledge of tuition and student fees, and then also by an unlimited-tax pledge if needed.

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