CHICAGO — Top-rated Washington University in St. Louis will sell about $200 million of taxable new-money and refunding bonds on Wednesday, lured to market by the attractive interest rate environment.

The deal includes a taxable new-money series for $107 million and a $99 million taxable refunding series. Though taxable for federal purposes, the interest is exempt from state income taxes.

The university opted to forgo a federal tax-exemption in light of better rates on some tranches of its bonds. “It also gives us flexibility in how we use the proceeds” of the new-money series, said university treasurer Amy Kweskin.

The school introduced taxable bonds into its debt portfolio last year as it sought more freedom in planning for the future use of building and debt management without federal tax code restrictions.

Morgan Stanley is the lead book-runner and JPMorgan is the joint-book-runner. Edward Jones and Wells Fargo Securities are co-managers. Gilmore & Bell PC is bond counsel. The Missouri Health and Educational Facilities Authority is the conduit issuer for the university.

The new-money proceeds will finance various projects at the university — which was founded in 1853 — with the majority going to pay for construction of a new business school. Other projects include an addition to a student hall, new student housing, utility projects and a new cancer center. The refunding will pay off bonds sold in 2003 for double-digit savings, according to Kweskin.

The university could have waited until later this year to sell debt based on financing needs and call dates on the refunding, but Kweskin said current near record-low interest rates proved too attractive to resist. “We wanted to take advantage of such favorable market conditions,” she said.

Ahead of the sale, Moody’s Investors Service affirmed the university’s Aaa rating and top VMIG-1 short-term credit marks on a total of $1.3 billion of debt. The outlook is stable. Standard & Poor’s also affirmed the university’s AAA.

Moody’s said the university’s top marks reflect its prominent position as a research institution with healthy student demand, a history of positive operating results, and a large and well-managed financial resource base that provides strong support for debt and operations.

The school reported $508 million of research expenses in fiscal 2011 and benefits from fiscal resources of $6.3 billion. It achieved a 20.7% return on its endowment in fiscal 2011 and has ample monthly liquidity of $2.3 billion.

The school’s challenges stem from a relatively high exposure to health care pressures as 34% of its operating revenue in fiscal 2011 came from that sector. The school also faces “significant competition from top-tier universities nationally,” Moody’s said. About 31 % of accepted freshman eventually enroll compared to peers with a median of 50%.

Taxable issuance by U.S. universities has surged since the 2008 financial crisis and is expected to continue, Moody’s said in a special report earlier this year. While earlier waves were due to the liquidity crisis and the now expired federal taxable Build America Bond program, the latest wave stems from the historically low spreads between taxable and tax-exempts and the added flexibility offered by freeing themselves of tax code restrictions.

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