CHICAGO — Chicago-based Roosevelt University enters the market next week to sell $188 million of debt to finance a new multi-use building that officials believe was worth a rating downgrade for the school to keep its transformation from a commuter school to a residential urban campus on track.

About $120 million of the fixed-rate issue is new money while another $33 million will refund variable-rate bonds from past issues. The letter of credit on the bonds being refunded expires in 2012.

“We wanted to manage our liquidity and letter-of-credit renewal risks,” said the university’s chief financial officer, Miroslava Mejia Krug. The remaining proceeds will cover capitalized interest, reserves, and the costs of terminating swaps.

Barclays Capital is the senior manager and Morgan Stanley is co-senior manager. Columbia Capital Management is financial adviser. The Illinois Finance Authority is the conduit issuer. The bonds are secured by a general obligation pledge and a mortgage pledge on most of the university’s Chicago campus property.

The new 32-story building located around the corner from its existing downtown Chicago campus will house some administrative offices, new lecture halls, dining facilities, a fitness center, science laboratories, and residential facilities. It will also serve as home to the school’s College of Business Administration. The project includes plans for a net increase of about 236 new student beds after the demolition of an existing student housing facility on the site.

The project marks the first major expansion for the school — first established in 1945 — since 1996 when it opened a northwest suburban campus. It represents a milestone in its efforts launched earlier in the decade to evolve from a part-time commuter school to a traditional four-year, full-time university, Krug said. The university also is expanding its suburban campus to house a pharmaceutical school and has restarted its intercollegiate athletics program.

The substantial jump in the university’s debt load to fund the new multi-use building and the stress it will put on the university’s balance sheet prompted a downgrade into the triple-B category. The university will have a total of $233 million of debt after the sale.

“We knew with the additional debt there would be pressure on the ratings, but we thought that if that is what it takes, then we need to do it,” Krug said.

The transformation is well underway as the school’s share of traditional students — post-high school and full-time — has risen to 55% this fall from 27% in 1997. Student demand is driving the need for the new building. Enrollment has steadily grown since the university embarked on its expansion and transformation plans, standing at 5,247 this fall, up 18% from the fall of 2006.

Moody’s Investors Service downgraded its rating one notch to Baa2 from Baa1.

Fitch Ratings also downgraded it one notch, to BBB-plus. “The downgrade primarily reflects Roosevelt’s sharp increase in debt to finance an aggressive capital plan,” Fitch wrote.

Moody’s said the school is additionally challenged by limited financial resources of $72.4 million, limited fundraising success, and a concentrated student body that draws primarily from the Chicago region.

In addition to strong enrollment growth, its other strengths include a broad program array, strong operating performance, good cash flow, and a conservative debt structure all in a fixed-rate mode after the upcoming sale is completed.

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