The Connecticut Health & Educational Facilities Authority is issuing $42 million of revenue bonds at the end of June for Choate Rosemary Hall Foundation, one of the state's premiere preparatory schools.
Lehman Brothers is the underwriter, and Public Financial Management Inc. is the financial adviser. Robinson & Cole LLP is bond counsel.
About $12 million of the deal is new money and will be used to finance the construction of two new student dormitories and faculty residences. This is the first time in 40 years the school is adding dormitories, which will be "adding a major boost for student life," Choate chief financial officer Richard Saltz said. The school's enrollment consists of 70% boarding students while 30% are day students.
The remaining proceeds will refund the outstanding balance of its last bond sale, which was in June 1997 for $33.1 million. As an independent school, Choate tries to do a lot of construction through fundraising. Hence "we don't issue a lot of debt," Saltz said. Choate has about $30 million of outstanding debt, he said.
"I think their budgeting practices and endowment levels have really allowed them to operate without doing a lot of borrowing," Moody's Investors Service vice president Roger Goodman said, noting that the school's debt levels have been moderate.
"We're in the construction phase of the dorms, and it's just a good market to refinance the current debt," Saltz said as to why the school chose to issue bonds now.
In conjunction with the issuance of these variable-rate bonds, Choate -- located in Wallingford -- entered into a 30-year forward starting interest rate swap under which the school receives a variable rate and pays a fixed rate, according to a Moody's report.
While the 30-year bonds are expected to be insured by XL Capital Assurance Inc., Moody's gives the bonds an underlying rating of Aa2. Given Choate's high levels of liquidity, Moody's feels that the risks associated with the swap transaction are fully reflected in the Aa2 rating. Standard & Poor's and Fitch Ratings have no underlying ratings for Choate.
Moody's has rated about 60 other independent schools across the nation, and Choate sits in the top 10, according to a Moody's report. Four schools have Aaa underlying ratings, four stand at Aa1, and just two, Choate and the Peddie School in New Jersey, are rated Aa2. The school is "highly regarded" with a low selectivity rate and healthy student demand, according to Goodman. For fall 2006, its full-time enrollment stood at 846, according to Moody's. Choate's growth of its financial resource base to $224 million with expendable resources of $145 million provides "strong coverage" of pro-forma debt and operations of 3.45 times and 3.23 times, respectively, the Moody's report said.
"The school is one of the top premiere private high schools, and we have maintained a very strong student base with a strong financial base," Saltz said.
Still, in order to sustain strong student demand, Choate will need to continue fundraising and growing financial resources, the Moody's report said.
"They're competing with the top institutions nationally, and some of those competitors have even larger endowments" that allow them to spend on such things as financial aid, Goodman said. Moody's gives a stable outlook for the school, maintaining that Choate will experience continued positive operating performance, healthy student demand, and growth in financial resources. (c) 2007 The Bond Buyer and SourceMedia, Inc. All rights reserved. http://www.bondbuyer.com http://www.sourcemedia.com
