University Of Chicago Gets Nod

CHICAGO — The Illinois Finance Authority board Tuesday advanced borrowing plans for several retirement communities and authorized up to $480 million in bonds for the University of Chicago to refund debt and fund projects, including a new research center for its molecular engineering program and astronomy and astrophysics work.

The university deal was granted preliminary approval by the IFA board Tuesday. It includes about $200 million of new-money borrowing to help pay for $373 million worth of projects and up to $280 million of refunding bonds that will tapped depending on market conditions and potential interest-rate savings.

The finance team is still working out structural details. Bank of America Merrill Lynch is serving as senior manager. Loop Capital Markets LLC is also an underwriter on the deal. Prager, Sealy & Co. is financial advisor, Chapman and Cutler LLP is bond counsel and Schiff Hardin LLP is borrower’s counsel. The school is planning to enter the market early next year.

The university, founded in 1890 as a private, nonsectarian school by John D. Rockefeller, would use proceeds to finance various projects at its campuses, including construction of its 265,000-square-foot William Eckhardt Research Center on its main campus in Chicago’s Hyde Park neighborhood.

The building will house offices, conference rooms and laboratories for the Department of Astronomy and Astrophysics, the Kavli Institute for Cosmological Studies and the Enrico Fermi Institute. The building will also house the university’s new program in molecular engineering. Construction is beginning this year and is expected to be completed in 2014.

The university late last month announced a $10 million donation from futures trader and alum William Eckhardt. The university named the center after him following a $20 million gift.

“William Eckhardt has been a champion of scientific research, and an essential supporter of the university’s efforts to bring innovative scholars to our campus and help them do their best work,” university president Robert Zimmer said in a statement.

The university also intends to use some of the proceeds to finance renovations and an expansion of its popular Lab Schools, allowing it to boost enrollment in the nursery school through high school program to 2,050 from 1,750. President Obama’s children attended the school prior to his election and new Chicago Mayor Rahm Emanuel said recently his children would attend the private schools.

The university carries current ratings of Aa1 from Moody’s Investors Service, AA-plus from Fitch Ratings, and AA from Standard & Poor’s. It also carries top short-term marks. All three affirmed their ratings last year.

In a report this past spring, Moody’s said the school’s high rating recognizes its market position as a leading national research university, favorable operating performance and cash flow, and strong fundraising. The credit benefits from the school’s “prestigious reputation in research and graduate education,” Moody’s wrote.

The university received $512 million in government grants for sponsored projects in fiscal 2010, including $82 million in federal stimulus funds.

The school manages two federal research laboratories: the Argonne National Laboratory and the Fermi National Accelerator Laboratory, which recently shut down its famed particle accelerator. The facilities received $1 billion in research grants that are not included in the university’s financial statements.

Graduate students make up 67% of a total enrollment of 15,644 students. Fiscally, the school has an average three-year operating margin of 4.6% and had an operating cash margin of 12.9% in fiscal 2010 with similar results expected for fiscal 2011.

The school received $251 million in total gift cash revenues in fiscal 2010 with a three-year average of $372 million in gift revenues.

The university’s challenges include a highly leveraged balance sheet, a debt structure with relatively low near-term principal amortization and longer bullet maturities, and $307 million in unfunded pension liabilities for a funded ratio of just 57%.

Officials have plans to borrow as much as $600 million in new money through fiscal 2015 for projects, further straining the balance sheet.

“Future debt capacity is limited at the Aa1 rating and future increases in debt absent compensating growth of financial resources and revenue to support the debt could put pressure on either the rating or outlook,” Moody’s wrote.

The IFA board Tuesday also advanced plans for United Methodist Home & Services’ sale of up to $8 million to expand, renovate and rehabilitate a nursing and orthopedic rehabilitation facility in Chicago, to fund projects at other facilities, and to refinance existing debt. United Methodist intends to sell the bonds with a letter of credit provided by BMO Harris Bank NA. The bank’s broker-dealer, BMO Capital Markets is serving as underwriter.

The Lodge of Northbrook received preliminary approval for its financing of up to $13 million to pay off a construction loan used to finance a three-story, 57-unit senior living community in the Chicago suburb of Northbrook.

America First Tax Exempt Investors LP will directly purchase the bonds. Kutak Rock LLP is borrower’s counsel and Baird Holm is bond counsel.

Bravo Properties LLC received preliminary approval for its sale of up to $20.5 million of affordable rental-housing revenue bonds to finance construction of a new 125-unit senior living facility known as St. Anthony of Lansing, which relies on $18.5 million of private-activity volume cap.

Bravo is forming a single-purpose legal entity to develop and own the project in conjunction with a tax-credit investor to be named at a later date. The bonds will be secured by a first mortgage on the property. William Blair & Co. is underwriter, Ice Miller LLP serving as bond counsel and Burke, Burns & Pinelli Ltd is borrower’s counsel.

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