DALLAS - After three years of planning, the Colorado State University System is preparing to issue its first long-term debt for a $250 million football stadium on the Fort Collins campus.
The stadium will replace at 47-year-old Hughes Stadium four miles west of the main campus. Hughes replaced CSU's last on-campus stadium Colorado Field in 1968. Promoters of an on-campus stadium say that having games on campus would promote the college atmosphere and help recruiting.
The first bonds to build the new stadium are expected to price in two series March 19, according to Rich Schweigert, chief financial officer for the CSU System.
Series A will be $126.89 million of tax-exempt revenue bonds reaching final maturity in 2055, while Series B will be $32.99 million of taxable bonds with final maturity in 2030.
"They're both fixed-rate bond series," Schweigert said. "We want to highlight the fact that pledge for these is the net revenues of the system, so the overall backing of the university is on these bonds."
RBC Capital Markets is senior manager on the deal, with managing directors Jon Moellenberg and J.J. Ament as lead bankers. Morgan Stanley is co-senior manager.
Stephanie Chichester, principal at North Slope Capital Advisors, and the firm's director Nick Taylor are financial advisors on the deal.
Kutak Rock is as bond counsel.
The new money bond issue will be followed by a $92 million advance refunding issue on March 24, Schweigert said. About $70.7 million of Series C bonds would be tax-exempt, while $21.7 million of Series D would be taxable. The refunding candidates are 2007, 2008, and 2009 revenue bonds, he said.
The system expects to issue $70 million variable rate System Enterprise Revenue Bonds Series 2015E, which are expected to be a direct bank placement, with no financial covenants or acceleration provisions, amortizing through 2047, and up for bank renewal in FY 2020.
The Series C and D refunding bonds will be backed by the state Intercept Program, which confers ratings of Aa2 by Moody's Investors Service and AA-minus from Standard & Poor's.
The underlying ratings on the new-money bonds are split at Aa3 from Moody's and A-plus from Standard & Poor's. While the Moody's outlook is stable, S&P assigns the bonds a negative outlook.
"While the stadium and other financed projects are expected to generate additional revenue, we have incorporated the possibility that projections may fall moderately short," Moody's analyst Mary Kay Cooney wrote in her March 11 report. "Nonetheless, the system's demonstrated operational flexibility, achieving positive financial performance and enrollment gains while facing state funding cuts through FY2013, highlights its long term financial strength."
Schweigert said Colorado lawmakers have reversed the funding cuts as the economy has improved.
"In fiscal year 2016, state appropriations should increase by $75 million," he said. "CSU's share of this increase will be an additional $15 million. General fund support has increased 31% over the last five years, and state funding per FTE [full-time equivalent student] has increased 38% over the last five years."
On the negative side, Cooney noted CSU's inability to reach its fundraising goal for the stadium.
"With growing leverage, significant cost overruns necessitating additional borrowing or use of reserves, or material failure to meet revenue projections, could pressure the rating," she said.
CSU president Tony Frank announced Sept. 25, 2014 that the university would not reach its goal of raising $110 million in private donations for the stadium. Despite that, Frank gave the stadium the green light in December.
"There is an argument that simply extending our time for fundraising will result in reaching our goal," Frank wrote in a letter to students. "After two years of fund-raising efforts, I do not share this view, and I am concerned that in the face of rising construction costs, each additional delay in a decision - regardless of the decision - results in cost escalation and expenditures on temporary repairs at Hughes Stadium that do not serve our university well."
Frank has said he believes the university can raise up to $50 million in private funds for the project but prefers to use the donations to pay off the annual bond payments rather than to offset the total cost of construction.
Another factor that could be seen as adding urgency to the upcoming bond sale are the historically low interest rates available in the muni market and the chances that the Federal Reserve could raise interest rates in a mid-year adjustment after years of warning that the rates would rise.
Support was not unanimous on the CSU Board of Governors. Joe Zimlich, board treasurer, said he could not endorse the project because of his concerns about stadium costs.
Frank said his primary concern with the project has been making sure the construction does not impact CSU's general fund. He said the financing plan, which includes new revenue streams created by the stadium, presents minimal financial risk, citing CSU's ability to thrive after the 2008 recession.
As currently envisioned, the stadium will seat 36,000.
A feasibility study prepared for CSU in August of 2012 estimated stadium revenue, minus expenses, of $10 million to $22 million a year. Annual income from Hughes Stadium was $6.7 million a year. Stadium critics contend that even the lowest of those estimates are overstated.
Interest payments on $220 million of bonds over a 30-year period would be around $10.5 million a year at a 4% interest rate to $13.2 million at 6% interest.
The new money bonds don't require state scrutiny because they are not backed by the state Intercept Program and bear ratings similar to those of the state itself, according to state Sen. John Kefalas, D-Fort Collins.
"To some extent this has come down to a duel of numbers," Kefalas said of revenue projections for the stadium. "Whose financial numbers do you believe to be more accurate?"
With groundbreaking expected this summer, CSU hopes to return football games to the campus in 2017.
