CHICAGO — Strong growth in Evanston, Ill.-based Northwestern University's endowment prompted Standard & Poor's to move the credit up into the elite ranks of higher education institutions as it prepares to sell $125 million of new money tomorrow.
The upgrade to AAA from AA-plus marks the school's third top rating as Fitch Ratings already rated it AAA and Moody's Investors Service assigns its Aaa. Fitch affirmed its rating Friday, according to the university, but Moody's has not yet released its latest review.
Growth in Northwestern's endowment to $7.3 billion further cemented its already strong credit profile supported by a solid balance sheet with "excellent liquidity" and strong student demand and management, analysts said.
"The upgrade reflects strong growth in an already-large endowment compared to operating expenses and debt, continuation of strong demand, and the expectation that future debt will remain manageable," said analyst Gwendolyn Shufro.
The university late last year monetized a royalty it holds in a pharmaceutical license, generating about $580 million that was funneled into its endowment, said Ingrid Stafford, associate vice president for financial operations and treasurer.
"We are very pleased to have the strongest ratings from all three rating agencies," shesaid. "It's a nice position to be in and to have this recognition in the marketplace."
Northwestern benefits from a strong student market position and a prestigious academic reputation, with full-time enrollment of about 15,000. Freshman selectivity stands at 26% based on the latest round of admissions, Stafford said.
The university plans to sell tomorrow variable-rate bonds that will be remarketed weekly and are supported by its own liquidity. The Illinois Finance Authority board approved the deal at a meeting last week. Proceeds will finance a portion of the construction of the Silverman Hall Building the school's chemistry laboratories and the initial stages of a new music building. The projects are part of a long-term capital plan that totals nearly $1 billion.
Morgan Stanley is the senior manager with another four firms rounding out the underwriting team. William Blair & Co. is the financial adviser and Chapman and Cutler LLP is bond counsel.
The university had previously entered into three forward-starting swaps that will synthetically fix the new debt. The counterparties are Morgan Stanley, JPMorgan Chase Co., and Bank of America Corp. The school will pay a fixed rate of 4.29% on the swaps, according to Stafford.
After the new issue, the school will carry about $720 million of debt with about half in a fixed-rate mode and half using a variable-rate structure. Northwestern's last deal was a refunding in 2006 and its last new money was raised in a 2004 sale. It has no additional borrowing plans for the rest of the year.