Berklee College of Music is planning a $90 million bond sale to help finance construction of a performance center, dormitory and dining hall at its main Boston campus.
Three months ago, the Boston Redevelopment Authority, the city’s planning agency, approved the school’s institutional master plan for developing three parcels along Massachusetts Avenue in the Back Bay neighborhood that officials say will add 500,000 square feet of space.
It is the first major expansion for the school, which was founded in 1945. The projected cost is $100 million, according to the authority.
The Massachusetts Development Finance Agency is the conduit issuer.
Though school officials have yet to set a date for the sale, Moody’s Investors Service has already assigned an A2 rating to the Series 2011 private college revenue bonds, with a stable outlook. Moody’s cited the school’s “strong market position as a leading institute of contemporary music, consistently with high cash-flow margins, all fixed-rate debt structure, and strong management.”
The bonds are secured by the unsecured general obligation of Berklee. They do not have debt service reserve funds, according to Moody’s. They will be issued in a fixed-rate mode with the last maturity in 2041.
According to Moody’s, the college will have $279.3 million of debt outstanding.
The project will add housing for about 800 students, which accommodates Boston Mayor Thomas Menino’s request that the many colleges and universities in the city move students on campus to open up rentals for neighborhood residents.
Berklee expects the new facilities to open in 2014. William Rawn Associates Architects Inc. of Boston is the architect.
The three parcels are at 168, 161-171, and 130-136 Massachusetts Ave. The first phase of the project is a 16-story, mixed-use building at 168, which will house dorm rooms with 370 beds, a two-story dining hall, and a student performance venue that seats 400.
At 130-136 Massachusetts Ave., which the school calls its Crossroads Project, plans are for a new performance center, part of a 24-story tower. Neighborhood opposition to the height forced Berklee to downsize its tower from the original 29 stories. The expansion at 161-171, which uses land Berklee purchased for $6.25 million from First Church of Christ in 2009, will boost academic and administrative support functions.
“With all of the new living space, we’ll be able to house our entire entering class. And, with all that it has to offer, 168 Massachusetts Ave. is going to be an important addition to the fabric of the neighborhood,” Berklee president Roger Brown said in a statement posted on the school’s website. Berklee is a short walk from Boston’s renowned Symphony Hall.
Berklee raised $54 million in its inaugural capital campaign that ended in 2010, according to Moody’s, which calculated the school’s three-year annual gift revenue through fiscal 2010 at $9.2 million.
“Moody’s expects that cash flow and debt service coverage will remain strong, incorporating the Series 2011 bonds with the bond-financed project (student housing),” the rating agency said in its report.
“The college’s track record of positive operating performance, healthy debt service coverage, and strong management and governance are key credit strengths helping to anchor the rating within the A2 category,” it said.
The school, now with about 4,000 undergraduate students, derives its name from its founder, composer Lawrence Berk, who began the college with three students as Schillinger House in 1945. He renamed it Berklee in 1954. The school awarded jazz musician Duke Ellington its first honorary degree, in 1971.
Berk’s son, Lee Eliot Berk, became the college’s second president in 1979. Brown, the first president outside the Berk family, took over in 2004.
In 1994, the school opened Berklee Center in Los Angeles to build strategic relationships throughout the music industry. It plans to open its Valencia, Spain, graduate school full-time in fall 2012, with 58 students now enrolled in a summer program. It marks Berklee’s maiden voyage into graduate education.
Moody’s said annual operating expenses for the Valencia school total about $1 million, with Berklee having downsized its facility.
Analysts warned that Berklee is highly leveraged, and that with the issuance of the Series 2011 bonds, fiscal 2010 expendable financial resources of $102.6 million provide thin pro-forma debt coverage of 0.37 times and pro-forma debt to revenue increases to 1.71 times.
The new debt issue will increase the college’s annual debt service to $17 million from $11 million.
Management has projected that the new student housing facility will generate positive cash flows from fiscal 2016 onward, according to Moody’s.
Meanwhile, Berklee’s Boston-area real estate accumulation, while not reflected in financial ratios, provides a hedge against “an extended period of financial stress,” Moody’s said. “The college’s ability to tap these real estate holdings provides a material credit distinction from most other higher education institutions.”
