The Connecticut Health and Educational Facilities Authority is gearing up for its largest issue to date — $600 million of private university revenue bonds for Yale University. Proceeds will be used for academic, research, and student life facilities.All new money, the bonds will be issued in two series, with the first coming as early as today or as late as next Tuesday, pending approval from Gov. M. Jodi Rell. CHEFA’s board gave final approval for the sale on Tuesday, said CHEFA assistant director Cynthia Peoples. Yesterday the board was awaiting approval from the governor, who has to okay all municipal bond transactions that take place in Connecticut. While Yale issues its own taxable debt, CHEFA has issued all of Yale’s tax-exempt debt. Rell’s office said the governor would sign off on the deal this week.
Lehman Brothers is manager for $400 million of fixed-rate bonds, which will price first. Fifteen days after the fixed-rate portion is sold, Lehman and JPMorgan will serve as co-managers on $200 million of auction-rate debt that will be sold in two series, each amounting to $100 million. Wilmington Trust is the auction agent for the seven-day auction-rate bonds. Hawkins Delafield & Wood LLP is the bond counsel. The bonds will be backed by the unsecured general obligation of the university, which Moody’s Investors Service rates Aaa and Standard & Poor’s rates AAA. Fitch Ratings has no rating for Yale. Moody’s also affirmed its P-1 rating and Standard & Poor’s affirmed its A-1-plus rating on Yale’s taxable commercial paper notes. Moody’s affirmed its P-1 rating in conjunction with Yale resizing its commercial paper notes program to a maximum of $1 billion from $250 million, said Moody’s assistant vice president Dennis Gephardt.“They have extremely impressive demand, and one of the largest endowments in the country,” Standard & Poor’s analyst Gwendolyn Shufro said of Yale. “Even with this additional debt, they can maintain the AAA rating.” Yale has a $17.9 billion endowment as of June 30, 2006, according to Standard & Poor’s. “[Yale’s] stellar student market position is the bedrock of who they are,” Gephardt said. “They have the benefit of having a very large base of financial resources to support their academic program.” Exceptional student demand was reflected in fall 2006 undergraduate freshman selectivity of 8.9% and yield of 70.9%, which is among the strongest rates of any university in the country, Moody’s said.The university has an active capital improvements plan, Peoples said. The proceeds of this sale will be used specifically to finance construction of new buildings for chemistry, engineering, social sciences, and art, and a health services facility. Over the past decade, Yale has implemented an “aggressive capital spending plan to address the university’s substantial accumulated deferred maintenance inventory and need for new facilities,” Moody’s said. Budgeted disbursements for fiscal 2008 are $615 million. Still, Moody’s believes that Yale will maintain prudent levels of balance sheet leverage, even as it continues to fund a portion of its substantial capital program with debt.“This is a continuing part of Yale’s maintenance and deferred maintenance plan,” Peoples said. Yale’s last issuance was $300 million of debt in October 2005. The university tends to issue debt every couple of years, Peoples said. The final maturity of the bonds is July 1, 2042. Including this current issue, Yale has about $2.5 billion of outstanding debt.
