Indiana University’s next bond issue veers from the school’s penchant for shorter-dated maturities in favor of a 40-year payment schedule.
The university is pricing $280 million of consolidated revenue bonds with the 40-year bullet maturity on Wednesday. The transaction will offer a mix of new money and refunding tax-exempt and taxable bonds.
IU's debt portfolio is otherwise characterized by very short-dated bonds, with average life under nine years, according to university Treasurer Donald Lukes.
“We are structuring the consolidated revenue bond with a 40-year maturity to lock in relatively low, long-term rate,” Lukes said. He said that the longer- dated bond will also serve to provide some diversification to IU’s debt structure.
The bonds are secured by available funds of $1.6 billion for fiscal 2019 including unrestricted fund balances at Indiana University Foundation (IUF) but excluding student fee and other pledged revenues, and state appropriations authorized for other purposes or restricted by law. The foundation conducts ongoing fundraising campaigns as well as major gift and special development programs to raise funds for endowments, research, student support, scholarships, capital projects and special programs.
Approximately $155 million in new money taxable bond proceeds will be used to fund the renovation of Foster and McNutt Quadrangles and construct the North Housing Addition. The remaining taxable bond proceeds will be used to advance refund bonds the university issued in 2012.
The tax-exempt bonds will current refund existing debt.
“In this case the university is taking advantage of the interest rate environment and the demand in the taxable market to reduce annual debt service cost versus our typical amortizing debt structure,” Lukes said. He said the university expects near $17 million of present value savings combined from the tax-exempt and taxable refunding for the consolidated revenue bonds transactions.
Goldman Sachs has the books and BofA Securities Inc. is co-senior manager. Stifel is co-manager.
Ahead of the sale, Moody’s Investors Service and S&P Global Ratings affirmed their triple-A ratings. The outlook from both is stable. IU has held S&P's AAA rating since 2016 and has been rated Aaa by Moody's since 2010. The university has $369 million in revenue bonds outstanding.
"These ratings reflect the work done throughout the institution to remain financially strong and fiscally responsible," said Lukes. "This healthy financial profile allows us to continue to have broad access to the credit markets and keep borrowing costs low, which helps us provide a high-quality education while maintaining low tuition.
IU also plans to price $115 million in lease revenue bonds the week of Feb. 12. The transaction will also include both new money and refunding bonds, subject to market conditions.
New money bond proceeds totaling approximately $84 million will be used for campus projects at Wilkinson Hall, Academic Health Sciences, and Innovation Hall. Refunding bond proceeds of up to approximately $46 million will be used to refund bonds the university issued in 2009, 2012, 2013 and 2014.
The university enrolls a significant 81,430 full-time equivalent students as of fall 2019. The largest portion of enrollment is at its Bloomington campus where nearly 50% of students are from outside the state. The university generated over $3.2 billion in operating revenue in fiscal 2019, over half of which came from student charges.
The university has a medical school in Indianapolis and is affiliated with Indiana University Health for its clinical training sites. IU Health is constructing a partially bond-financed new hospital on IU’s Bloomington campus, scheduled to open in 2020.
