Record student numbers drive Montana State University into the bond market

Montana State University plans to price $42.8 million in revenue bonds this week to build a residence hall to help absorb the 36% in enrollment growth it has experienced over the past decade.

It will price into a supply-constrained market after many issuers moved bond sales forward to December to beat the federal tax bill.

“We are excited about the timing, because a lot of bond issuers were getting advanced refundings done before the tax rules changed,” said Laura Humberger, the university’s associate vice president for financial services.

As municipal investors look to re-invest money that comes available in January from redemptions, it can create a phenomenon known as the January Effect where municipal prices rise as a result of heightened demand and constrained supply.

Montana State University rendering

“We expect a very strong reception from the market, because not a lot of paper comes to market in Montana, so when it does, it gets a strong reception,” said Doug Brown, director with Wells Fargo SecuritiesPublic Finance, the lead manager on the deal.

Buyers are usually Montana-specific buyers who manage accounts for residents of the state and national higher education buyers, Jones said.

Generally speaking, Jones said they haven’t seen the January Effect.

“The first few weeks of the year haven’t been as robust as previous Januarys, but we expect a good reception,” he said.

A $21 million refunding sold by the university in June was two times oversubscribed, Humberger said. The university hopes for all-in interest rates of 3.75% on this week’s sale, she said.

The finance team is rounded out by Nick Taylor at North Slope Capital Advisors as financial advisor and Erin McCrady of Dorsey & Whitney as bond counsel.

The deal garnered an Aa3 rating from Moody’s Investors Service and A-plus from S&P Global Ratings. Moody’s assigns a stable outlook. S&P maintained the positive outlook it gave the university ahead of the June refunding. It cited increased operating margins and stabilized full-time enrollment for the improved outlook.

The university expects to break ground this spring on the $50 million, 480-bed student housing building on its Bozeman campus and open in fall 2020, Humberger said.

The last residence hall the university constructed was fully occupied before it was completed. The university ended up converting student lounge space in the 400-bed Yellowstone Hall completed in 2016 to create space for an additional 36 students, Humberger said.

Enrollment is expected to level off with the current 16,703 population inching up by 300 students over the next year, Humberger said.

In addition to the Bozeman campus in southern Montana, the university system has a two-year college in Great Falls, and two other four-year colleges, MSU Northern in Havre and MSU-Billings.

The university has been lauded by the Carnegie Institute for the opportunities it affords undergraduates to work in research, which Humberger partially attributes to the university’s enrollment growth. The university’s excellence in math, science and engineering has made the school one of the leaders in attracting students who have earned Goldwater scholarships, a national merit scholarship, she said.

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