The Cleveland Institute of Art plans to issue $17 million of junk-rated debt through the Ohio Higher Educational Facility Commission to finance the acquisition and furnishing of a new student housing facility in the city’s cultural district.
The tax-exempt bonds, rated BB by S&P Global Ratings, are scheduled to price next Tuesday. The outlook is stable. KeyBanc Capital Markets, Inc. is the senior manager.
The bonds are a general obligation of the school and will be used to fund the costs of acquiring and furnishing the 203–bed, four-story student housing facility completed in August. CIA financed the costs of building the new residence through a public private partnership with NewBrook Partners with an arrangement where the school could purchase the building.
“We have seen significant demand in the below investment grade and non-rated category,” said Tim Kelly, director at KeyBanc Capital Markets. “There is no better time to be in the market for a transaction like this.”
CIA’s full time enrollment is up 12% over five years at a time when neighboring schools that similarly depend on a regional draw of students have seen enrollment decrease.
In the past the school has had a requirement for just first-year students outside of Cuyahoga County live on campus. It changed the requirement in the fall of 2018 to include first and second year students. The new building will house the second-year students and, Kelly said, will help the school's student-retention efforts.
“Our mission is to nurture the intellectual, artistic and professional development of students and community members through rigorous visual arts and design education,” said institute President Grafton Nunes. “As part of that mission, we continually look for ways to enhance the on-campus experience for our students. Through this financing, we’re able to offer more housing options and accessibility to our facilities, which is particularly helpful for many of our out-of-state students.”
CIA is an independent college of art and design, specializing in all forms of visual arts education. As an exclusively undergraduate institution, the Institute enrolls approximately 625 students; CIA has nearly 53 full-time and 69 adjunct faculty, who are all professional artists, designers, and scholars. About 61% of its students come from Ohio.
“In our view, CIA has a satisfactory enrollment and demand profile,” S&P said. “Overall enrollment has consistently grown moderately in the past few years. Management reports that changes to the school's student demographic and geographic diversity has supported enrollment growth in recent years. “
The school recently wrapped up a six-year, $75 million campaign that financed a campus consolidation and modernization project. That project, a mix of historic preservation and new construction, unified the college's facilities at a single address for the first time in almost 40 years.
The school is currently planning stages of a $50 million endowment campaign. Annual fundraising has ranged from $1.1 million to $1.2 million on average for the past few years; these trends are expected to continue.
In January 2018 CIA acquired and liquidated the McCullough Center Investment Fund which allowed allowing CIA to recognize a gain via new market tax credits and a corresponding increase to the school's unrestricted net assets of approximately $5 million, according to S&P.
The school has only $626,000 of debt outstanding from a construction loan with KeyBank as of June 30. The loan was issued in conjunction with the campus consolidation and modernization project and is secured by capital campaign pledge payments.
