Double-A rated Middlebury College is expected to price $70 million in uninsured revenue bonds the week of June 24 to raise capital for a new library and expanded dormitory on its rural Vermont campus. It is also monitoring the market for the opportunity to do a $22 million refunding.
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The tax-exempt, new money sale is expected to close the week of July 8. It comes on top of plans by the state's public university system, the University of Vermont and State Agricultural College, to sell $119.4 million in tax-exempt debt later this month or in early June.
While the University of Vermont is planning to use a more traditional structure, selling a mix of serial and term bonds, Middlebury is taking advantage of the market's confidence in its longevity, selling the entire $70 million as a term bond in two series, each with a 30-year bullet maturity.
"We have two major projects," said F. Robert Huth, vice president for administration and treasurer at Middlebury, which has about 2,300 undergraduate students. "What we are trying to do is create a more valuable student experience."
The college charges students $35,900 a year for tuition, room and board, and all other student fees. It has a $630 million endowment, Huth said. The library and dorm projects are beginning this year and should be completed by the fall of 2004.
The bonds are being sold through the Vermont Educational and Health Buildings Financing Agency, which yesterday also closed the sale of $15.5 million in revenue bonds in a combined deal for Northwestern Medical Center and Springfield Hospital.
Moody's Investors Service rates Middlebury's credit Aa3, and Standard & Poor's rates it AA. The college said it is selling the $70 million in two series -- $50 million as fixed-rate, 30-year bullets, which could include noncallable debt, and $20 million in variable-rate bonds that also go out 30 years.
The variable-rate series would be sold as put bonds, with the college asking investors to tender the bonds and the debt being resold to set new one-year interest rates annually on the series. Goldman, Sachs & Co. is the lead banker, and Sidley Austin Brown & Wood is bond counsel.
The college last came to market in 1999 when it sold $60 million for projects, including an expansion of one of its other dormitories, which total five. It sold the $60 million as a 40-year bullet with no insurance. According to TM3.com, the bonds were enhanced in the secondary market with backing from MBIA Insurance Corp. TM3.com is an Internet platform owned by Thomson Media, which also owns The Bond Buyer.
Middlebury is also looking to advance refund $22 million in bonds outstanding from a 1992 sale. It is waiting for short-term rates to rise in order to be able to meet a 5% minimum net-present-value savings on the refunding. Low short-term interest rates have reduced the benefit of reinvesting the proceeds from refunding bonds, cutting into the savings.
The problem, known as negative arbitrage, has delayed the advance refunding of other tax-exempt bond issues as well.
Middlebury has been considering doing the refunding since last year. With the new money sale, it is completing a capital plan that began in 1994. In a report on the proposed deal issued in November, Standard & Poor's said the college has $179 million in long-term debt.
In the report, it said the college has "moderately high debt levels" while it attracts strong demand from new college students, has a diverse revenue base, and significant financial flexibility "as a result of conservative contingencies in its financial statements."
The two rating agencies had not released reports on the $70 million sale as of press time.
