CHICAGO— The City Colleges of Chicago has picked a banking team led by Jefferies for its inaugural sale of $250 million of debt that’s on track to sell in September or October.

The borrowing will help finance a $524 million capital program the system is undertaking to upgrade its seven community colleges across the city.

The system’s board – appointed by Mayor Rahm Emanuel – approved the underwriting team at its August board meeting.

The firms were chosen after a competitive selection process with assistance from financial advisors Columbia Capital Management and Peralta Garcia Advisors.

Loop Capital Markets LLC and Ramirez & Co. Inc. will serve as co-senior managers.

Goldman Sachs, The Williams Capital Group, Cabrera Capital Markets LLC, BMO Capital Markets, Lebenthal & Co. LLC, and Siebert Brandford Shank & Co. LLC are co-managers.

Cabrera founder Martin Cabrera led CCC’s board until last year when he was tapped to lead the Chicago Plan Commission board.

Mayer Brown LLP and Burke Burns & Pinelli are bond counsel and Katten Muchin Rosenman LLP is underwriters counsel. Minority owned firms comprise 32% of the team and women-owned firms account for 12%.

The capital program unveiled by Emanuel and CCC Chancellor Cheryl Hyman last year “enables major improvements throughout our seven-college system—from upgraded classroom technology to new teaching and learning facilities—that will ensure students are ready for further college and careers,” the system said in a statement.

The sale will mark City Colleges’ first, because previous debt for its projects was sold by Chicago. The system anticipates issuing fixed-rate bonds with a general obligation and alternate revenue bond pledge, a double-barreled structure frequently used by the city’s sister agencies that face tax caps. 

Final decisions on the pledges have not been made but officials are looking a combination of property taxes, personal property replacement taxes, state aid, and tuition and fees. CCC will seek first-time bond ratings ahead of the deal.

The system will fund its capital program with bond proceeds, tax-increment financing, state aid, and “capital reserves that have been built with surpluses achieved through operational efficiencies” officials said. The alternate revenues are expected to cover debt service.

The plan calls for investments at all colleges, including a new $250 million Malcolm X College that will house the system’s College to Careers programs in allied health. The program also calls for $77 million in classroom and other academic-related improvements, $16 million for life safety and security systems, and $135 million to cover deferred maintenance projects.

The system, which serves 115,000 students annually, is overhauling its educational program to better prepare students to find jobs in industries experiencing growth, such as health care, transportation and high-tech manufacturing.

The system’s challenges include exposure to chronic state aid delays and possible future state funding cuts. It also relies on the same tax base as Chicago, a fact that contributed to Moody’s Investors Service’s recent downgrade of the Chicago Park District.

The college system, however, carries a solid balance sheet with healthy reserves and a budget endorsement for fiscal restraint and strong financial management practices from the Civic Federation of Chicago which tracks local government spending. The $657 million fiscal 2014 budget is balanced without a tuition hike or tax increase. 

The system’s primary sources of operating revenue include tuition at 40%, property taxes at 42%, and state aid at 16%.

Officials also stress that their fund balance is equal to 20% of expenses providing liquidity to manage through state aid delays. The state’s fiscal 2014 budget also held its funding levels steady.

The Civic Federation praised the system for holding the line on its property tax levy for the fourth consecutive year, reducing the unrestricted operating portion of the budget by 6.9% or $21 million, and negotiating a new agreement with labor to curb rising personnel costs.

The system is also incorporating into its expenditure forecasts the phased-in costs to cover a portion of employee pension benefits which are now covered by the state. The shift has been included in various state level pension reform proposals. The federation’s analysis of the budget also recommends the district formalize a comprehensive long-term financial plan.

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