The University of Michigan will offer $225 million of its top-rated paper next week in a new money and refunding deal that will help finance a new robotics building.
The school is issuing roughly $17 million of taxable bonds to fund a portion of the Ford Motor Company Robotics Building, a new state-of-the art facility for the College of Engineering's robotics program. Ford provided a significant gift and will be leasing part of the building to locate collaborative research activities with the university.
“We chose to issue taxable bonds for this project so as to not have to worry about any potential private business use limitations or tracking due to the collaboration with Ford,” Cynthia Corridore, assistant treasurer at the University of Michigan said.
The tax-exempt bonds will be issued in two series. Roughly $84 million of the proceeds from the $147 million series will be used to refund bonds from a 2009 issue and the rest will fund new money projects. The projects include the renovation and addition to its Dearborn engineering lab and the renovation of the school’s student union center.
Another $62 million of tax-exempt bonds, structured as fixed rate, soft-put bonds, will fund a portion of the school’s new money projects. The first put date is April 1, 2024
“The put bonds add diversity to our debt portfolio and takes advantage of the short end of the yield curve, appealing to a broad investor base,” Corridore said.
The bonds will sell in the week of Feb. 11 with Goldman Sachs as senior manager. Bank of America Merrill Lynch, Barclays Capital and Wells Fargo Securities are co-managers.
The bond sale will increase the university’s debt load to $2.5 billion with $330 million more expected over the next two years. At the same time, the university also plans to pay down approximately $80 million in principal in fiscal 2019, and about $180 million in fiscal 2020-2021.
The university is rated Aaa by Moody’s Investors Services and AAA by S&P Global Ratings.
“In our view, UM has sufficient balance-sheet flexibility to absorb this debt, at the current rating, assuming the balance sheet remains stable,” S&P said.
“While UM has substantial capital plans over the next three to five years, its debt levels will remain manageable given the multiple sources of capital funding,” Moody’s said.
UM is the flagship among Michigan's 15 public universities. It has an enrollment of more than 59,133 at its main campus in Ann Arbor and two other campuses in Dearborn and Flint. The university’s operating revenue for fiscal 2018 totaled $8.7 billion. The university derives roughly half of its revenue from its Michigan Medicine health care operations.
The university has an endowment of $12 billion, according to an investor presentation. State operating appropriations are only 4% of the university's overall revenue
In December 2018, the university became the first public institution to successfully raise $5 billion in a fundraising campaign, raising over $5.2 billion for the Victors for Michigan campaign, $1.2 billion over its $4 billion goal, according to S&P.
