CHICAGO — Indiana University is selling $56 million of so-called green bonds Wednesday, the second public university to tap into the young market.

The university will also refund $63.4 million in the deal, led by underwriter Morgan Stanley. JPMorgan, Loop Capital Markets and City Securities Corp. are also on the team.

The sale comes two weeks after University of Cincinnati became the first public university to sell green bonds, a new muni marketing brand that highlights the fact that the proceeds will be used for environmentally sustainable projects.

IU will be the first Big 10 school to sell green bonds.  The private Massachusetts Institute of Technology was the first university to sell the debt, issuing $370 million of taxable bonds in September.

Like the University of Cincinnati, IU hopes to win LEED, or Leadership in Energy & Environmental Design, certification for the projects being financed with the bonds.

Indiana University plans to use the proceeds to build a $45 million arts and sciences building in Gary, on the university's northwest campus. The building will include a 500-seat theater, art studios and science labs.

Another $21 million of the proceeds will be used to renovate a building into a media school on the main campus in Bloomington.

The university expects to see a net present savings of 7.5%, or $4 million, from the refunding, officials said.

Indiana University already has the most number of LEED-certified buildings among Top 10 schools, according to Don Lukes, Associate Vice President and Associate Treasurer at the school.

"We were really taking our cues that this is something that investors were looking for; investors that are trying to target their dollars towards more socially responsible projects," Lukes said of the university's decision to market the debt as green bonds. "It's a way to potentially reap new investors and get our story out there."

Lukes said the finance team doesn't expect to see any significant savings coming from the green-bond marketing.

The university enjoys Aaa ratings from Moody's Investors Service and AA-plus from Standard & Poor's.

The bonds are secured by student tuition and fees, with repayment coming ultimately from the state, where the General Assembly authorizes the appropriation, on a biennial basis, of an amount equal to the annual debt service due on the bonds.

Moody's praised IU for being one of the nation's largest universities, having a global reputation and strong research programs. State funding makes up 18% of the university's operating revenues, and the state provides debt service support for nearly 40% of its outstanding debt, according to Moody's.

Challenges include ongoing capital needs and constrained revenue growth, analysts said.

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