CHICAGO — The University of Chicago will offer up about $350 million of taxable and tax-exempt paper this week as it wraps up borrowing for the final phases of a $1.2 billion capital program and gears up for a new fundraising campaign.
The 123-year-old university in Chicago’s Hyde Park neighborhood south of downtown intends to sell about $150 million of tax-exempt debt on Tuesday through the Illinois Finance Authority. Morgan Stanley is senior manager with JPMorgan serving as co-senior manager. Cabrera Capital Markets LLC, Loop Capital Markets LLC, and Northern Trust Securities are co-managers. Chapman and Cutler LLP is bond counsel.
The university returns the following day with about $200 million of taxable securities. Wells Fargo Securities is the senior manager. Bank of America Merrill Lynch, PNC Capital Markets LLC, US Bancorp, and William Blair & Co. round out the team.
“The need for taxable funding is driven by the type and use of the capital projects anticipated within current capital plans” with projects meeting the university’s strategic plan but unable to qualify for tax-exemption, officials said.
The university tentatively plans on refunding about $50 million of outstanding bonds in the transaction this week. The remainder represents new money that would finance the planning, design, and construction of various facilities including the William Eckhardt Research Center, the university’s laboratory schools, and other educational, research, and administrative facilities on its campuses.
Ahead of the sale, all three rating agencies affirmed the university’s ratings. They include a AA-plus from Fitch Ratings, a Aa1 from Moody’s Investors Service and a AA from Standard & Poor’s. The bonds – which bring the school’s debt load to $2.6 billion when full use of its commercial paper program is counted – are a general unsecured corporate obligation of the school payable from all legally available revenues.
The university benefits from its international status as a top research school, increasing demand that has allowed it to tighten acceptance rates, and strong liquidity supported by diverse revenue streams and solid balance resources.
The university will bump up against the debt load supported by its balance sheet at the current ratings level, but university officials said the sale this week would complete its borrowing needed through the next several years. The university has been in the midst of a $1.2 billion capital program that runs through 2015.
“Any future borrowings will be driven by the financial planning process led by senior university leadership and the Board of Trustees that is currently underway,” university officials said in an email.
The school has an enrollment of 15,415. Liquidity is supported by unrestricted cash and investments of $5.14 billion. The university also benefits from a “solid” $6.7 billion endowment, Fitch said.
Standard & Poor’s analyst Jessica Matsumori said the rating reflects “UC’s balance sheet strength relative to both debt and expenses and the depth of its fund raising capacity that, together with exceptional enrollment flexibility and revenue diversity, provide the university with considerable financial stability.”
“That being said, the university’s ambitious $1.2 billion capital plan, combined with recent and expected operational deficits through 2014, put downward pressure on the rating,” she added.
“The primary credit challenge is the university’s extremely high leverage relative to its balance sheet and revenue combined with growing liabilities associated with the university’s benefit plans,” Moody’s wrote.
The school is gearing up to adopt a new comprehensive strategic plan with a goal of improving operating performance by 2014 and to meet debt service demands that grow in 2020. It is also in the early phases of a new fundraising campaign. It successfully raised $2.3 billion through 2008.