The Ohio State University went to market Tuesday with a nearly $560 million deal to refund its Build America Bonds, exercising an extraordinary redemption provision to refund all of its outstanding Series 2010C bonds.
Senior manager Jefferies on Tuesday priced for the university $559.7 million of general receipts refunding bonds, all with a June 2035 maturity and, to yield 2.94% with a 5% coupon.
The tax-exempt, fixed rate bonds received a rating of Aa1 from Moody's Ratings. Fitch Ratings and S&P Global Ratings rated the bonds AA-plus. The outlook is stable across the board.
Michael Papadakis, senior vice president and chief financial officer at Ohio State, said by email that the transaction used an extraordinary redemption provision to call and refund the taxable BABs. He said they've gotten "a similar level of (bondholder) questions compared to other transactions" on this deal.
Build America Bonds came into being in 2009, giving issuers the option of issuing taxable debt and receiving a 35% direct-pay subsidy from the federal government. By 2010, over $180 billion of BABs had been issued, priced with three kinds of calls: optional, make-whole and extraordinary redemption provision. Most BABs were of the latter type.
The BAB program
Issuers started
"This trend was very active last year," Foux said. "Typically, you do it when tax-exempts are rich, because you can call BABs and refund them via tax-exempts. Ballpark, it was probably about $18 billion that was called. The total size of the market at the time was about $110 billion; not all BABs have ERPs, so it was about $100 billion of bonds" total.
In 2013, Congress began chipping away at the BAB subsidy through budget sequestration. The current sequestration rate reduction is 5.7%, according to the
"At the time, I think everyone thought the promise of the federal government was very sound," said Nikolai Sklaroff, capital finance director for the San Francisco Public Utilities Commission, which has executed successful BAB refundings in recent years. But "almost from the beginning of this program, those subsidies have been reduced," he said.
"For our agency, the last time we looked at it, that meant a loss of $25 million over the course of the program," he added.
What's changed in recent years are two dynamics, one being litigation and the other being the PAYGO Act and budgets that would have triggered sequestration of the BAB subsidy but for Congress waiving it, Sklaroff said.
A favorable
"In 2025, we're in a situation where it takes an affirmative action by congress to waive that in order to avoid losing our subsidy," Sklaroff said. "So underwriters have been pitching this as a risk mitigation strategy."
Last year, as higher interest rates and the absence of the advance refunding option combined
The refundings
"For the first six, seven months of this year, there was a lull. Tax-exempts underperformed through August," said Foux, stressing that he was speaking in general and not about any specific party or deal. "They called maybe a handful of BABs, but that's about it."
Since August, "ratios came down… Ten-year ratios came down quite a bit," he said. "So we saw a number of bonds called starting in August. It was roughly $3 billion per month, and then it increased. You probably had about $6 billion, $7 billion called in the last four months of the year."
Sklaroff said that while one might expect BAB refundings to wane over time, "at the same time, you have these unique dynamics where the refunding isn't economic simply based on rates going down, it's really this relationship between tax-exempt and taxable rates."
He noted "there have been periods in the not so distant past when even more savings could be generated" than today, but "the concerns about Congress's ability to agree to take action to preserve this subsidy have caused a number of issuers, including ourselves, to want to be able to mitigate our exposure to that kind of event."
Ken Rodgers, director at S&P, said the Ohio State BABs are being refunded now because the ratios are favorable at present.
"We view OSU's management and governance as being best in class, and a hallmark of that is transparency and timely communication," he said by email. "OSU is one of the rare nonprofit college and universities that issues public quarterly information about how they are performing from an enrollment standpoint and financially and provides other updates on items that may be of interest to bondholders."
The university suggested in an online investor presentation that it had taken steps to head off federal threats to its funding by agreeing to limit programs that appear to support non-white people.
"The university signed a resolution agreement on Oct. 3, 2025 requiring the university to disclose any membership or partnership that may be limited by race, along with additional information about the membership," the presentation says. "The university will submit the requested documents to (the Department of Education's Office of Civil Rights) by Feb. 1, 2026 and will take steps to cancel any membership or partnership that is restricted based on race."
Papadakis did not respond to questions about the resolution agreement, except to say that OSU is in compliance with federal regulations and continues to work to respond to OCR by Feb. 1.
"It is our understanding that OSU is in compliance with all federal and state laws and policies that it is subject to," S&P's Rodgers said.
S&P said its stable outlook stems from the expectation that OSU's enrollment will stay steady, operating margins will stay positive, and financial resources will suffice to maintain the rating.
The rating agency noted that it expects no significant new money debt during the outlook period except for the $162 million amortization of principal for fiscal years 2025 and 2026 that OSU will have paid down.
The university's total outstanding debt as of fiscal 2025 year's end was $4.1 billion.
As of Dec. 1, OSU had about $3.42 billion of general receipts bonds outstanding, including the Series 2010C bonds. The university's general receipts bond portfolio includes 82% fixed rate debt, 8% variable rate debt and 10% synthetic fixed rate debt.
General receipts revenues have been steadily growing over the past four years, rising from $7.52 billion in 2024 to $8.38 billion in 2025, according to the investor presentation.
One of the lessons Sklaroff has learned from past BAB refundings is to gauge investor interest carefully.
"One of the things that slowed a lot of people down in exercising this refunding (option) was concern about how investors would respond," he said. "In our particular situation, we strongly value our investor relationships… so we waited to make sure that the investor reaction would be favorable and that they would accept this refunding type."
BAB refundings look poised to continue though the supply is diminishing.
"Going forward, I think the universe of bonds that could be called is shrinking," said Barclays' Foux. "Now, some of the bonds are maturing; some of the bonds don't have ERPs. By 2026, we'll probably end up with a universe of $75 billion of available bonds."
But with ratios remaining low, he said, "we should see quite a bit of that" BAB refunding activity in 2026.
Bricker Graydon LLP is bond counsel on the deal. PFM Financial Advisors was municipal advisor, according to the
