Indiana University comes to market today with $72 million in revenue bondsbacked by student tuition and fees, a sale that brings a raised outlook for the school,which has weathered state cutbacks to maintain its growth.
The university, whose main campus is in Indianapolis, will use the funds for a varietyof capital projects, including a communications technology complex on the Indianapoliscampus, a library and student center project in New Albany, and a professional educationbuilding on the Gary campus, said Stewart Cobine, managing director for capitalfinancing for the university treasurer.
Depending on market conditions, the university could also refund $42 million, Cobinesaid.
Morgan Stanley is the lead underwriter on the sale and Lehman Brothers is co-seniormanager. Ice Miller is bond counsel Standard & Poor's rates the bonds AA, while Moody'sInvestors Service affirmed an Aa2 and raised its outlook on the university's debt topositive from stable.
The university should continue to maintain current enrollment growth and cash flow evenas the state institutes cuts this year. One major factor in the change in outlook isthat 75% of the university's current debt is eligible for a state program thatreimburses the university for debt service, said Elizabeth Veasey, an analyst withMoody's.
Only bonds issued to fund certain projects qualify for the reimbursement, she said. Butwhile the state has made other cuts to higher education, the reimbursement program fordebt service remains funded, she said.
As part of its ongoing attempts to compensate for a sluggish economy, Indiana in 2002deferred funding to the university for one month. This year, the base funding for theuniversity was cut by 3.2%, Moody's said. However, the university received additionalfunds for technology, which have offset some of those reductions, Veasey said.
The university also has been successful in its fund-raising campaigns, she said. Thecurrent campaign has already exceeded its goal of $700 million, she said. That successis typical of universities with established foundation and gift programs, Veasey added.Indiana University and Purdue University are the largest universities in the state, andIndiana is a strong university nationally, she said. Moody's expected the university tocontinue to increase enrollment, even with anticipated tuition increases.
The university has $652 million of outstanding debt that is covered by the debt-servicereimbursement program. That amount includes $12 million of bonds the Indiana UniversityFoundation will soon issue to fund a new research facility, Veasey said.
While Moody's cited the debt-reimbursement program as a strength for the university, thepossibility of additional state cutbacks could cause "difficult choices" in comingyears, Moody's analysts wrote. The state and the governor are working on a proposed$22.8 billion budget for the next biennium.
The university's debt has remained level, but additional debt is expected in the comingyears. The university has tentative plans to build more parking space for itsIndianapolis campus, which could prompt the sale of commercial paper. In addition, theinstitution is finalizing a review of student residences, which could lead to furtherdebt issuance.
