DALLAS - Rice University priced $700 million of taxable bonds, raising $100 million for new projects and refunding tax-exempt debt with taxable.
The bonds priced April 15 through negotiation with Morgan Stanley and JPMorgan. Eric Wild, managing director at Morgan Stanley was lead banker.
Triple-A-rated bonds maturing in 2045 earned a yield of 3.574 on like coupons, 72 basis points above the tax-exempt scale. Bonds maturing in 2055 yielded 3.774, according to Bloomberg.
Kathy Collins, chief financial officer for the university, declined to comment on the deal. One industry expert said the pricing was favorable for the university with some maturities oversubscribed. With yields so low on the taxable market, the university decided to refund tax-exempt with taxable bonds, according to one person involved in the deal.
The bond counsel firm of Bracewell & Giuliani, didn't return calls seeking information on why the bonds were taxable. The university had faced a challenge on a 2006 issue that was deemed taxable by the IRS.
The bonds carry AAA ratings from Moody's Investors Service and Standard & Poor's.
"The ratings reflect our view of Rice's strong enterprise and financial profile, including a substantial endowment of $857,405 per full-time equivalent student in fiscal 2014 and impressive demand metrics in line with the 'AAA' category," S&P analyst Laura A. Kuffler-Macdonald wrote. "We believe a heavy reliance on the endowment for annual operations, and the recent full accrual operating deficits in fiscal years 2012 and 2013 offset these strengths."
Rice has an estimated $816 million of debt outstanding, according to analysts. With the recent refinancing and current debt refinancing, 95% of the university's debt will be fixed-rate.
The current refinancing will refund all of the callable series 2007A and 2007B and all the series 2013A, and 2013B bonds outstanding. It will also terminate the swap associated with the 2013 bonds. Debt levels will rise to $940 million with this issue.
"Debt levels remain in line with the category relative to liquidity," Kuffler-Macdonald wrote. "However, we believe debt service is high relative to operations. Debt service payments are uneven and will remain so with this financing."
Debt service averages $43 million through bond maturity. Maximum annual debt service of $96.6 million comes in 2052. Debt service in fiscal 2014 was $29 million or 4.2% of operating expenses, which Moody's views as moderate.
"Nevertheless, maximum annual debt service equals 14% of 2014 operating expenses, which we consider very high," Kuffler-Macdonald said. "The university does not have plans to issue additional new debt within the outlook period."
The Rice Board of Trustees will approve the specific projects to be funded from the $100 million of new money, according to the preliminary official statement. Projects will likely include campus infrastructure to support the westward development of the campus. Officials expect to add parking capacity to replace parking areas lost to new construction. The proceeds may also be used for renovation projects.
As an elite, Tier 1 research university, Rice is highly selective in acceptance of students. In fall of 2014, the Houston university accepted 15% of first-year applicants in compared to 21% in fall 2010.
"The vibrant demographics within the State of Texas and limited capacity at its top public university campuses will continue to provide a strong source of applicants," Moody's analyst Karen Kedem said. "Over time, we expect further improvement in the university's competitive position as its significant recent strategic investments continue to raise Rice's profile."
With about 6,400 undergraduate and graduate students, Rice has financial reserves of about $6 billion and operating revenue of $613 million, according to Kedem.
With an original $7 million endowment created by businessman William Marsh Rice, the University opened in 1912 as Rice Institute. Tuition was not charged until 1965. Rice granted its first undergraduate degree in 1916 and its first graduate degree in 1918.
Tuition has increased 60% since 2006 to $41,560. This year's 4.2% increase exceeds that at many of its peer universities, but Rice remains more affordable than many other elite private colleges and universities.
On March 10, Rice officials broke ground for the $31.5 million Brian Patterson Sports Performance Center that will house a weight room, a home-team locker room, coaching and staff offices, a 150-seat auditorium, a football team lounge and areas for training and sports medicine that include hydrotherapy, plunge pools and exam rooms.
