LOS ANGELES — Pepperdine University received Double A ratings from two rating agencies ahead of plans to price a $77 million revenue bond refunding the week of July 20.
The bonds will be issued through the California Educational Facilities Authority, a conduit issuer that falls under the state treasurer's office.
Pepperdine expects to issue a total of $77 million of series 2015 bonds through negotiated sales.
Bond proceeds will be used to refund the university's currently outstanding series 2005A and 2005B bonds, of which $85 million remains outstanding.
The refunding of these bonds is expected to provide Pepperdine with a net present value savings of approximately $11.8 million or 13.9%, under current market conditions, according to a CEFA staff report. The bond proceeds will be used to fund capital improvements on the Malibu campus and pay the costs of issuance for the Series 2015 Bonds.
Morgan Stanley & Co. LLC is the lead manager and Wells Fargo Securities is co-manager.
The rest of the finance team is comprised of Public Financial Management Inc. as issuer's financial advisor, Macias Gini & O'Connell LLP as issuer's financial analyst, Ropes & Gray LLP as borrower's counsel, Orrick, Herrington & Sutcliffe LLP as bond counsel and O'Melveny & Meyers LLP as underwriter's counsel.
Fitch Ratings assigned the bonds an AA rating while Moody's Investors Service assigned an Aa3 ahead of the sale. Both gave stable outlooks.
The bonds are an unsecured absolute and unconditional general obligation of the university.
"The AA rating reflects Pepperdine's solid financial profile, which is highlighted by a strong balance sheet, consistently positive operations, and a relatively low debt burden that supports good maximum annual debt service coverage," Fitch analysts wrote in the July 8 report.
Additional credit strengths include steady undergraduate enrollment, favorable management practices, and unique campus located in Malibu, Calif., according to Fitch.
Pepperdine's enrollment trends are stable, with freshmen admissions and matriculations increasing over the past two years, while graduate student demand has followed a similar trend, Fitch analysts said. However, Fitch said that Pepperdine's freshmen matriculation rate is lower than peer institutions.
"The University operates in a competitive environment located in southern California. However, Fitch believes Pepperdine has a strong reputation and brand in addition to its location in Malibu, which help serve as market differentiators," according to Fitch analysts.
Pepperdine plans to expand student housing to serve an additional 358 students on its Malibu campus over the medium term, but no specific financing plans have been outlined.
Management is still contemplating the total size and scope of the project. Fitch said it would expect any incurrence of additional debt will be accompanied by a growth in resources commensurate with the additional leverage.
The 830-acre main campus of Pepperdine University, a Christian University founded in 1937, is in Malibu overlooking the Pacific Ocean. That campus has five schools on the main campus: Seaver College of Letters, Arts and Sciences; Graduate School of Education and Psychology; Graziadio School of Business and Management; School of Law; and School of Public Policy.
Pepperdine also has six international sites, along with a site in Washington, DC, that support the university's study-abroad program.
The university's debt service is relatively flat and fixed-rate with no swaps, with the exception of one taxable series of bonds, which has a $50 million bullet payment in fiscal 2020, Fitch wrote.
