Craig Brothers
Craig Brothers
Early July is a good time to price investment grade bonds, because "a massive amount of money comes into the market as a result of the July 1 interest payments," said Craig Brothers, Senior Portfolio Manager, Fixed Income Bel Air Investment Advisors LLC.

LOS ANGELES — Single-A rated Chapman University's $130 million of unsecured general obligation bonds will seek bond investors flush with cash from July 1 interest payments when the bonds price on July 8.

The bonds aren't likely to be impacted by turmoil from distressed credits like Puerto Rico, Chicago or Greece, according to Craig Brothers, senior portfolio manager of fixed income for Beverly Hills-based Bel Air Investment Advisors.

"If you are a high quality credit, I don't think the things going on in Greece, Puerto Rico or Chicago affect your ability to price," Brothers said.

Moody's Investors Service, the sole rating agency to rate the bonds, affirmed the Orange County, Calif. school's A2 rating ahead of the deal. The outlook is stable.

It is a good time of year to price, Brothers said, because a massive amount of money comes into the market as a result of July 1 interest and redemption payments.

"There is a huge reinvestment," Brothers said. "It is the biggest reinvestment of the year with the July 1 money and maturities coming due, there is a huge influx of money coming into the market."

Chapman will price the bonds through conduit issuer California Education Facilities Authority.

Wells Fargo Securities is book runner; Orrick, Herrington & Sutcliffe is bond counsel; and Stradling Yocca Carlson & Rauth is counsel to the university.

Chapman is a non-profit, privately endowed university offering undergraduate liberal arts, professional and graduate degrees. The university also provides adult education courses through Brandman University, a separate nonprofit corporation that is controlled by the university.

Total university enrollment for the fall term of the 2014-15 academic year, including Brandman, was 12,881 full-time students, according to the preliminary official statement.

Bond proceeds will fund a portion of the construction of the Center for Science and Technology, renovation of some campus buildings and to pay for the cost of borrowing.

The tax-exempt fixed-rate bonds will be issued as serial bonds with a final maturity of April 1, 2045.

The rating was "based on Chapman University's steady student demand for its programs with growing net tuition per student, consistently strong operating cash flows, favorable gift revenues, and its strategic position as the only comprehensive private university in Orange County, Calif.," according to Moody's June 10 ratings report. "These factors are counter-balanced by an intensely competitive market, the university's heavy operating reliance on student charges, and a modest financial resource cushion relative to expenses."

Strong recent growth of cash and investments allows the university to comfortably absorb the new debt issuance, Moody's wrote in its report.

The university's tuition and fees have increased 43% from 2010 to 2014, putting it at the high end of the spectrum when compared against 10 other similar universities, Harold Hewitt Jr. executive vice president and COO of Chapman University said during a road show presentation posted on munios.com. Only Pepperdine University's tuition was higher.

The university had total unrestricted revenues, gains and other support of more than $359 million and total unrestricted expenses of roughly $329 million as of fiscal year ended May 31, 2014.

"We are comfortable pricing right after the holiday and, in fact, expect a lull in supply - so it should be a good week to bring Chapman to market," said Richard W. Chisholm, managing director & co-head of the higher education/nonprofit group at Wells Fargo Securities.

Chapman has a great reputation in the West with increasing visibility nationally, Chisholm said.

"The management team is strong, operating results are excellent, demand trends are positive, and leverage is modest," he said.

The current municipal market is strong with lots of cash and the tone is good, Chisholm said.

"The impact of Greece and Puerto Rico has been felt more in the Treasury market and less in the municipal market," he said.  

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