CHICAGO - Indiana's Purdue University is set to enter the market as soon as today with $113 million of student fee revenue bonds.
Bond proceeds will be used to finance several capital projects at two of the university's four campuses. Purdue is expected to borrow another $100 million this year to continue to finance its capital needs.
Pending final approval from the state, the school hopes to sell the bonds today or Friday, entering a market officials said is currently very attractive.
"We're excited about the market," said Denise Laussade, Perdue's director of the office of treasury operations. The sale comes just a few days after Indiana University - another double-A rated, state-supported school - sold $75 million of fixed-rate student fee bonds, capturing a true interest rate cost of 4.5%.
"They had a very successful issuance and got what we consider a very attractive rate," Laussade said. "The market seems very healthy. With the California issue significantly oversubscribed, there are many buyers out there and we'd like to ride that wave."
Barclays Capital Inc. is senior manager, and City Securities Corp. and Cabrera Capital Markets LLC round out the underwriting team. Ice Miller LLP is bond counsel and Chicago-based John S. Vincent & Co. is the school's financial adviser.
Ahead of the deal, Moody's Investors Service assigned a Aa1 rating to the bonds and affirmed its Aa1 rating on the rest of the school's long-term debt and VMIG-1 rating on its short-term variable-rate demand bonds and certificates of participation. All of Purdue's variable-rate debt is supported by either self-liquidity or liquidity support from highly rated banks, Moody's said.
Standard & Poor's affirmed its AA rating on the bonds, and revised its outlook to positive from stable on the university's debt, citing strong financial operations and management.
The bonds are secured by student fees, including tuition - which make up 44% of Perdue's 2008 operating revenue - and certain other revenues. The bonds are not backed by state appropriations, which account for 23% of the university's operating budget, or grants, which represent another 17% .
After the transaction Purdue University will have a total of $785 million of outstanding debt, which includes a $50 million commercial paper program. Roughly $246 million of that is in the variable-rate mode or is commercial paper, according to Moody's. The Purdue Research Foundation has another $106 million of outstanding debt, Laussade said.
West Lafayette-based Purdue enjoys a strong balance sheet and ample liquidity that is expected to continue over the near term, analysts said. But like Indiana University and other state schools, Purdue could face some challenges stemming from Indiana's somewhat weakened economy.
Though the state is generally better off than its neighbors, legislators cut 1% of the higher education spending in fiscal 2009. Purdue compensated for the cuts with various cost management measures, analysts said. Meanwhile, the General Assembly is in the process of crafting final budget for 2010, though large-scale cuts in higher education are not expected.
Perdue has more than $545 million of investments with same-day liquidity that could be tapped to cover any tenders of its $232 million of variable-rate or commercial paper debt, said Moody's analyst Diane Viacava.
Established in 1869, Purdue University has about 67,000 full-time and part-time students enrolled across its four campuses.