Indiana University to Tap Advisors for Parking Privatization

CHICAGO — Indiana University plans to select a financial advisor by the end of the week to help manage the proposed privatization of its parking system.

It will be one of three advisors the school expects to hire as part of the process.

The university will tap a main financial advisor from a list of respondents to a request for proposals the university sent out to select firms earlier this summer. Officials then plan to select an additional parking advisor as well as a third advisory firm to "act as a second set of eyes" on the deal, said IU Treasurer MaryFrances McCourt.

The board of trustees approved the hire last Thursday.

If the deal is done, it would make IU only the second public university to enter into a long-term lease of its parking system for upfront cash. The school is modeling the proposal on Ohio State University's precedent-setting privatization deal that closed last year.

The OSU deal brought in $483 million in cash for a 50-year lease of its parking system.

McCourt said she expects IU will send out a second RFP for a parking advisor within the next two weeks.

"We know from the OSU deal that structuring the whole thing can take several months," she said. "We hope to have the advisors in place as soon as we can."

One of IU's trustees, William Strong, a Morgan Stanley executive, reportedly proposed the privatization deal last February. Morgan Stanley was OSU's advisor during its deal.

IU has $75 million of parking fee-backed debt that would need to be defeased.

OSU in June became the first public university to privatize its parking system when it tapped QIC Global Infrastructure and LAZ Parking for a 50-year lease of the deal. The firms paid $483 million in upfront cash for the asset.

Like IU, OSU officials said the lease was needed to generate additional money at a time when state aid is falling.

"I think we have to take a look at this," university President Michael McRobbie was quoted as saying in local reports at last week's trustee meeting. "Every single source of revenue open to the university is open to threat. So we have to be creative."

Meanwhile, IU hits the market Wednesday with $105.5 million of gilt-edged student fee bonds, with $58 million coming tax-exempt and $47 million taxable.

The bulk of the deal is refunding, with roughly $14 million of new-money debt that will be used to finance energy-savings projects.

For the first time, the school is refunding a chunk of its tax-exempt bonds into taxable bonds, a move allowed by the market's historically low rates. It will give IU flexibility on use of the proceeds, McCourt said.

"The rates are so good," she said. "It will straight out still save us money, but also lightens up the compliance side."

JP Morgan is the senior underwriter, with Goldman, Sachs & Co. and Loop Capital Markets acting as co-senior. Ice Miller LLP is bond counsel.

Moody's Investors Service affirmed its Aaa rating ahead of the sale. Standard & Poor's maintains a AA-plus rating on the credit.

The bonds are secured by a pledge of the university's student fees, excluding fees pledged to other bonds and state aid. They are not secured by a debt-service reserve fund.

IU receives about 20% of its revenue from the state. In fiscal 2010 and 2011, Indiana cut the school's aid by $22 million and $29 million, For the current 2012-2013 biennium, the Indiana General Assembly reduced aid by 2%, or $9.1 million.

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