DALLAS -- The triple-A University of Notre Dame plans to sell $400 million of taxable bonds on Thursday.
Roughly $253 million of bond proceeds will be used to reimburse the South Bend, Indiana-based university for various capital projects and $147 million will be used to refund a series of tax-exempt bonds that were issued through conduit St. Joseph County.
Goldman Sachs is the senior manager on the deal. Moody’s Investors Service affirmed its Aaa rating ahead of the sale. The outlook is stable.
As a highly rated, well-known university Notre Dame is not expected to experience great challenges if pending legislation that would end tax-exempt bond issuance for nonprofits forces it to the taxable market for all its issuance.
It's been moving that direction anyway. Rich Bellis, associate vice president for finance at Notre Dame, said the university has been issuing taxable debt going back to 2010 in a bid to have more freedom over how it uses its facilities.
“When you are tax-exempt you are limited to the amount private business use that can maintain the facilities,” Bellis said. “As our research base grows and we get research dollars in and as we seek other partners to come and work with us -- whether it’s to run our facilities whether it or if it's to sell concessions at our football game -- whatever it might be, having private activity within our facilities is becoming more and more likely. We are trying to remove any issues we could have in the future with tax-exempt finance facilities.”
Bellis said that another benefit to refinancing its tax-exempt deal is that over the last several years, on a yield to maturity basis, the taxable market has been more attractive than the tax-exempt market.
Moody’s said that the University’s revenue sources are diverse, with revenues from student charges contributing 43% of fiscal 2017 operating revenues. Investment income is the second largest revenue contributor at 36% and gift revenues contribute 8% or operating revenues.
Grant and contract revenue has grown by 6% since fiscal year 2013. The University is a fundraising leader, with $428 million of average gift revenues for fiscals 2015 through 2017.
In August 2017 the university publicly announced its “Proudly Notre Dame” campaign with $3.4 billion raised to date. Although the campaign is comprehensive, Notre Dame has announced the single highest priority is $1 billion for undergraduate student financial aid. In the prior campaign the university raised $2.0 billion against the $1.5 billion goal. That campaign showed nearly 68% alumni participation, reflecting Notre Dame's loyal and highly supportive alumni base.
“Robust financial reserves with excellent unrestricted liquidity support debt and operations,” said Moody’s. “Further balance sheet reserve growth is expected from Notre Dame's remarkable fundraising prowess combined with consistently strong operations reflecting prudent financial management.”
For fiscal 2017 Notre Dame had $1.4 billion of operating revenues with over 12,300 full-time equivalent students. The University currently plans to issue about $100 million to $150 million of new money debt in about three years to fund infrastructure and facilities renewal projects.
“The current capital and financing plans are manageable given expected balance sheet growth from fundraising and operating cash flow,” Moody’s said.