The Ohio Building Authority issued $9.5 million of bonds on behalf of Clark State Community College, marking the second transaction under the new Ohio Community and Technical College Credit Enhancement Program.
The Ohio legislature enacted the program as part of its 2009 budget to lower borrowing costs for two-year colleges that in many cases are unrated or are rated lower than the OBA’s double-A.
The program comes as many community and technical colleges in Ohio — and across the country — are seeing climbing enrollment and higher capital needs due in part to the recession.
The Clark State bonds included $1.9 million of tax-exempt debt and $7.5 million of taxable Build America Bonds that mature from 2020 through 2035.
“The state carries a higher rating than the college, and the program enables us to lower our interest expense by taking advantage of that higher rating,” Joseph Jackson, vice president for business affairs, said in a statement after the sale.
The college, based in Springfield, will use proceeds to purchase a building in the town of Beavercreek.
The program features a pledge by the Board of Regents to send its monthly school aid payment directly to the bond trustee if the college is going to miss a payment.
“We are not a regular participant in the bond market, and it appears that investors take some comfort in knowing that the intercept backstop is in place,” Jackson said. “We take a lot of comfort in having the OBA team represent us in the market. They are a regular issuer, and we benefit from the technical expertise that they bring to the table.”
Officials said they expect more two-year schools to tap the program.
In late August, the authority sold $20.1 million of tax-exempt and taxable BABs on behalf of the Stark State College of Technology. The sale captured a blended interest cost of 3.39%.
Colleges interested in the program need to win approval from the State Board of Regents, the OBA, and the Office of Budget and Management.
The debt will be payable from the institutions’ general receipts and the state has implemented several criteria the school must meet to participate. For example, the borrower’s state aid must equal at least 1.25 times the fiscal year’s remaining debt service, according to Moody’s Investors Service.