CHICAGO - The Illinois Finance Authority board signed off on up to $700 million of new-money and refunding financing for the University of Chicago.
The board Tuesday also advanced its first borrowing on behalf of a college to fund affordable student loans.
The University of Chicago would borrow about $200 million of new money for its ongoing capital program and could refund up to $500 million from a 2008 issue, according to IFA documents.
The university is still considering structuring issues. Fixed-rate bonds would carry the university's long-term ratings which currently stand from AA-plus by Fitch Ratings, Aa1 from Moody's Investors Service, and AA from Standard & Poor's. Floating-rate bonds may carry a liquidity security in addition to the university's short term ratings.
The bonds will be a general unsecured corporate obligation of the university and not backed by a mortgage or security interest on any of the school's assets, properties or funds. "Both sizing and interest rate modes to be determined based on evaluation of market conditions," documents read.
Barclays is the senior manager with PNC Capital Markets as co-senior manager and Loop Capital Markets LLC and William Blair & Co. as co-managers. Chapman and Cutler LLP is bond counsel. Prager & Co. is borrower counsel. Acacia Financial Group is advising the IFA.
The University also intends to issue taxable bonds on its own.
Proceeds of the tax-exempt new money bonds will primarily finance the build-out of various projects initially financed with issues in 2012 and 2013.
Projects include a new residence hall and dining commons and various other capital improvements at the school's administrative, academic and research facilities and general campus infrastructure improvements.
Moody's and Standard & Poor's shifted their outlook on the credit to negative in January due in part to the university's borrowing plans.
"The revised outlook reflects our view of the university's worse-than-anticipated fiscal 2013 financial performance, combined with its recently adopted strategic plan, which calls for deliberate deficits through fiscal 2018," said Standard & Poor's analyst Jessica Matsumori.
In addition to $300 million to $400 million of new debt planned in fiscal 2015 in the upcoming tax exempt and taxable issues, another $300 million to $500 million is planned through fiscal 2018. The university has $2.6 billion of outstanding of debt when its commercial paper is fully utilized.
The strategic plan's initiatives will help better position the university, but the prolonged deficits and additional leverage produce credit risks that may result in a credit profile more in line with the AA-minus rating, Matsumori said.
Moody's action was driven by similar factors as well as pressures on the university's hospital system, which is rated Aa3 and has seen thinner operating margins driven by transfers to the university.
The highly selective university on Chicago's south side has a student body of 15,000. The credit benefits from a still strong balance sheet, good unrestricted liquidity, strong and leading research position, and strong fundraising profile. It was founded by John D. Rockefeller in 1890.
The IFA board also signed off on its first borrowing under the Higher Education Loan Act, which allows it to issue revenue bonds to lend to higher education institutions to fund education loans to students and parents. The board approved formally establishing an education loan program to pave the way for the issuance.
The student loan program will provide assistance to schools to supplement federal guaranteed higher education loan programs, and other student loan, grant, or scholarship programs " to provide additional needed financing options for students and parents of students," board documents said.
The board gave preliminary approval to a first borrowing under the program. It authorizes the sale of up to $15 million of tax-exempt student loan revenue bonds for the Midwestern University Foundation. The school offers graduate and professional programs in dentistry and pharmacy and other advanced degrees for health care professionals.
The foundation is considering a structured financing to obtain A-level ratings based on forecast cash flows from a student loan repayment model.
The IFA will provide a portion of the state's private activity volume cap to allow for the tax-exemption.
RBC Capital Markets is the underwriter. Borrower's counsel is Locke Lord LLP and bond counsel is Chapman. The bonds would be sold under the Higher Education Loan Authority's authorized cap of $200 million and so would not impact the IFA's statutory cap of $28.15 billion in debt.
