During a time when the University is driven to find all opportunities to be fiscally responsible, the Division of Finance and Planning found an opportunity to save money as well as look forward to provide future debt capacity.
On March 8, the University offered $34.7 million in debt securities for sale in the open market. The proceeds from the sale will be used to pay off existing debt that was issued in 2006 to finance the rehabilitation of the residence hall complexes, construction of the South University Street parking deck, and the planning and site development of the Student Fitness Center. Due to favorable market conditions and an April 1, 2016, call date, the University along with our financial adviser at Blue Rose Capital advisers saw a good opportunity to issue new debt at rates significantly lower than the existing rates.
As with any debt sale, the University reached out to Moody’s Investor Services and Standing and Poor’s to do a review of the University and assign a credit rating to the new debt. Despite the current challenges due to the lack of a state budget, Moody’s reaffirmed the University’s’ rating of A3 and Standard and Poor’s reaffirmed its A+ rating. These ratings are the second highest of all the state public Universities and are higher than the state of Illinois.
As a result of the reaffirmed ratings and the favorable market, the University received seven bids through a competitive sale. The accepted offer from JP Morgan Securities, LLC, came in with a true interest cost of 2.986 percent. The lower interest rates on the new debt will result in over $7 million in refunded savings over the life of the bonds which results in $3.6 in present value savings. In addition, the University will contribute $3.4 million in cash to retire one year of principal on the existing debt. The lower interest rates and additional cash payment will reduce 2 years off the total length debt. This will allow for greater debt capacity in the future.