University of Chicago offering up taxables

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CHICAGO – The University of Chicago brings $400 million of high-grade taxable debt to market this week.

Wells Fargo Securities and JPMorgan are senior managers. The team was taking indications of interest on the issue Wednesday with pricing set for Thursday. PFM Financial Advisors LLC is advising the university. The deal will refinance commercial paper and pay off a line of credit.


Ahead of the sale, Fitch Ratings affirmed the school’s AA-plus rating, affecting the new debt and and $3.1 billion of outstanding taxable and tax-exempt bonds – with the latter sold through the Illinois Finance Authority. Moody’s Investors Service affirmed its Aa2 rating and S&P Global Ratings affirmed its AA-minus. All three assign a stable outlook.

The university’s rating “reflects its international reputation for academics, research and patient care; very strong demand characteristics; and exceptional student quality,” Fitch said. “Counterbalancing factors include a high debt burden, sizeable capital plan and continued operating deficits.”

The university expects to issue new money in the coming years to support its ongoing capital program but the “exact timing and amount is uncertain and dependent upon financial conditions and fundraising,” S&P said.

Fall 2018 enrollment is expected to be slightly higher from the 2017 level of more than 16,000 students and research continues to grow with awards up to $514 million in fiscal 2018 from $492 million and fundraising achieved a record level in fiscal 2018. The school has raised $4.4 billion towards a $5 billion capital campaign goal.

The university’s balance sheet and liquidity benefits from more than $5 billion in available resources and is supplemented by four dedicated lines of credit that for $500 million.

Operating performance has been negative since fiscal 2012 as part of its board-approved financial framework plan that includes debt issuance and other sources to fund strategic initiatives and endowment draws to support operations. The university is working to achieve balanced operations by 2020.

Hhealthcare sector-related risks are offsetting factors to the university’s balance sheet and reputational strengths, S&P said. The university’s medical center and other health-care related sources generate 44.7% of revenue. It owns and operates the University of Chicago Medical Center.

“Management's ability to adjust the timing of future capital expenditures and to fundraise for key projects will be crucial to rating stability going forward,” Fitch said. “Failure to achieve operating balance within that time frame could prompt rating pressure, particularly against an increasing debt burden.”

U of C -- founded in 1890 by John D. Rockefeller on Chicago’s South Side Hyde Park neighborhood -- is a large private research university with prestigious academic programs and internationally noted research, including collaborations with Argonne National Laboratory and Fermi National Accelerator Laboratory, both U.S. government labs.

In 2013, the university affiliated with the Marine Biological Laboratory in Woods Hole, Massachusetts.

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Primary bond market Taxable bonds Higher education bonds University of Chicago Illinois
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