Princeton University on Wednesday will take bids for $250 million of natural triple-A rated debt to help pay for new academic buildings and maintenance projects. The New Jersey Educational Facilities Authority will issue the debt on behalf of the university.
McCarter & English LLP is bond counsel. Government Finance Associates Inc. is Princeton's financial adviser while Public Financial Management Inc. is financial adviser to the NJEFA.
The university carries natural triple-A ratings from Standard & Poor's and Moody's Investors Service. Fitch Ratings does not rate the credit.
Princeton typically sells about $200 million of new-money debt annually on a competitive basis.
Controller Kenneth Molinaro said the school benefits from offering the bonds through an open bidding process.
"We believe we get better pricing by doing it competitively and historically we've had very strong interest in our competitive offers," Molinaro said. "So there's plenty of demand out there when we do that and it's been successful in the past and that's why we're continuing to do it this time."
Series 2008J will include fixed-rate bonds with serial maturities beginning in 2010 and going out for 30 years. Current plans include principal amounts increasing gradually each year, from $4.4 million in 2010 to $14.9 million in 2038, according to the preliminary official statement. There are no term bonds listed in the POS.
J. Chester Johnson, chairman of GFA, said the maturity structure reflects the school's heavy retail demand, including from alumni that live in-state and throughout the country as well. He added that in previous years, when bond transactions included the printing of actual coupons, the university's school colors of orange and black were used in the printing of the paper bonds, a testament to school spirit.
"I think is important to bear in mind that there's tremendous retail demand for Princeton, not only in New Jersey - where it is also quite significant as an investor pool - but also Princeton is a strong name outside the state, where it has a very active alumni," Johnson said.
The school may also benefit from the current market environment where fewer bond transactions offer enhanced triple-A ratings, giving Princeton's natural triple-A credit a bigger spotlight in the market.
"We would expect some institutional interest as well, especially at a time where you don't have a lot of highly rated credits in the sense that insurance provided a lot of triple-As for years," Johnson said. "And now there's certainly a reduced number of insured issues and insurance isn't exactly what it was before."
Several bond insurers have lost their triple-A ratings in the wake of the credit crisis.
Bond proceeds from the sale will help finance construction of several buildings for chemistry laboratories, neuroscience and psychology studies, and a new facility for the engineering school. Other capital projects include renovating dormitories and various repairs and maintenance projects throughout the campus.
Last year Princeton sold $325 million of new-money debt and nearly $100 million of refunding bonds. Molinaro said this year the school does not anticipate refinancing previous debt as current interest rates do not offer enough savings.
Princeton has roughly $1.5 billion of outstanding debt, including this issue. Of that amount, about $236 million is unhedged variable-rate debt. Molinaro said the university does not have any auction-rate securities and that officials believe swap agreements do not benefit the school's finances in light of its high credit ratings.
"The university has always had a very conservative history in terms of its debt policy, and we have some concerns about counterparty risk relative to our own triple-A credit quality," Molinaro said. "And so we've never been compelled to do derivative-type of financings."
Princeton's last new-money bond sale priced on June 6, 2007, for $325 million with Citi as the winning bidder. Maturities ranged from 2008 through 2037 with yields ranging from 3.72% with a 4% coupon in 2010 and 4.68% with a 4.5% coupon in 2037. Debt maturing in 2008 and 2009 was sold with a sealed bid.
The school historically issues debt through the NJEFA, an arrangement that Molinaro said the university will continue as Princeton is not a frequent issuer and tends to offer one large bond transaction a year.
"We basically leverage their expertise and resources to help us manage our way through the issuance process," Molinaro said. "I think if we were in the market much more frequently, it might make sense to build up our own resources, to do that on a regular basis. But once or twice a year it makes more sense to leverage the expertise and resources of a conduit authority."
In looking at the $17.2 billion investment pool, which includes an endowment of nearly $17 billion, Princeton gained investment earnings of 4.5% in fiscal 2008, which ended June 30. That return is considerably less than the previous year's rate of return of 24.7%, yet analysts say the 4.5% is still a solid figure considering current market conditions, according to Mary Peloquin-Dodd, an analyst at Standard & Poor's.
"It's still favorable relative to what we've seen for performance for that period," Peloquin-Dodd said. "It's still very good performance for the higher-education industry endowments."
Princeton is located in central New Jersey. Total student enrollment for the 2007-2008 school year reached 6,960, including 4,845 undergraduates and 2,115 graduate students. Full-time tuition for the upcoming school year is $34,290 for both undergraduates and graduates.