Merrimack College's private partner is selling almost $100 million dollars of bonds for the school's new housing project.
The private Massachusetts college is employing a public-private partnership as it takes advantage of its rare position as a Northeast liberal arts school with rising enrollment.
"This is a new way of funding needs of institutions in the U.S., and I find it innovative," said Nicholas McDonald, special assistant to the president at Merrimack. "And that's what we do at Merrimack. We push the envelope, and we try different things, and we're never, never afraid to try something new."
The Massachusetts Development Finance Agency will issue the bonds on behalf of CHF Merrimack, Inc., a nonprofit created by the College Housing Foundation. This
The revenue bonds are slated to price Aug. 20, in a negotiated deal. The first tranche, series 2024A, will include $92.53 million; the second, $1.2 million of series 2024B, is federally taxable.
Stifel, Nicolaus & Company is the manager for the deal and Mintz Levin is the bond counsel.
The issuance received a speculative-grade BB rating from S&P Global Ratings.
As such the bonds will only be offered and sold to qualified institutional buyers or institutional accredited investors, with minimum $100,000 denominations, according to the online investor presentation for the deal, a limit that will be dropped if the bonds receive a rating of BBB or higher.
The proceeds will fund the construction of two buildings, according to the presentation, with a combined 540 beds for students. The first building will have traditional dorm rooms, and the second will have suite-style rooms. Each building will have roughly 234 units.
Construction is scheduled to end in August 2026, in time for the students to move in for the fall semester. Greystar Real Estate Partners is providing development and construction for the project.
Merrimack will lease the land for the project to CHF Merrimack, Inc. and the College Housing Foundation for the duration of the bonds. The
The bonds will be entirely paid through the rent revenue; Merrimack will ensure the buildings are at full capacity before assigning students to any other on-campus housing. However, the deal allows the college to avoid much of the risk and keep the debt off of its balance sheet.
"It was important for Merrimack to not impact their credit rating, because they want to preserve their balance sheet and their excess debt capacity for on-campus projects," said Dev Talvadkar, managing director at Stifel. "So this was a way to essentially get their housing built and address that need without sacrificing financial flexibility to address other projects."
Merrimack has debt of its own; the college tapped the bond market several times in the last decade, most recently in a $33 million revenue bond deal in 2022.
S&P rates Merrimack's outstanding revenue bonds BBB-minus. The school had $156.6 million of bond debt outstanding as of June 30, 2023, according to financial information provided in the preliminary official statement.
In recent years, the higher education sector has experienced
This year, higher education closures have accelerated to roughly
But Merrimack is moving in the other direction. The college's full-time equivalent enrollment has grown 34% over the last seven years, and 25.6% just between 2018 and 2023. Last year, Merrimack had 5,688 graduate and undergraduate students.
"That's a key credit strength, in our view, for the college's rating," S&P analyst Travis Nauert said. "Kind of bucking some broader higher ed trends."
The school is expanding its programs in a data-driven way, McDonald said, growing popular majors like nursing.
Merrimack's leadership "knows who their target audience is," Talvadkar said.
"They are looking for a kid who's done well in high school, who will do well in a smaller, nurturing, but challenging environment," Talvadkar said. "Unlike other colleges, they really defined who they are and what they want to do."
Universities with strong, recognizable brands
"There's something special at Merrimack," McDonald said. "It's an exciting place to be, and I think that's really important."
The college also got a boost six years ago when its athletic programs joined the NCAA's Division I.
"The day that we announced we were Division I, there were phones ringing off the hook for transfers, and people coming from all over the country," McDonald said.
The college's community seems to be a selling point, because 88% of undergraduate students reported that the availability of on-campus housing was important or very important to their decision to attend Merrimack, according to the investor presentation.
However, Merrimack's on-campus housing can only house around 2,266 students, the roadshow said. The school, 25 miles north of Boston, is supplementing its on-campus housing by leasing some floors of an adjacent apartment building, McDonald said, but that arrangement is getting increasingly expensive.
"You can demand whatever you want as a landlord in Massachusetts, which is pretty sad," McDonald said.
A semester in one of the new dorm rooms will cost $6,700. A semester in one of the suite-style units will cost $7,500.
In a survey of 16% of the university's students, 90% of undergraduate respondents said they would rather live in the new housing than off-campus, according to the investor presentation. The analysis suggested there is demand for 838 rooms — 150% of what will be available when construction is finished.
S&P expects Merrimack's enrollment trends to continue in the coming years, despite the demographic cliff.
"Their leading indicators they had for fall 2024 were all very promising in terms of applications and deposits," S&P analyst Megan Kearns said. "In general, their ability to be innovative and add high-demand programming and be responsive, I think they're keenly attuned to the data that they have and very responsive to that."
Merrimack has been preparing for the demographic cliff for years, McDonald said, and hopes to manage it by increasing graduate enrollment, strengthening its three-year bachelor's degree programs, and attracting former students with incomplete college degrees.
"At the end of the day, they just continue to rise above," said Brad Gysin, director at Stifel. "It's not just five years of enrollment growth, this is going back 10 years."
The deal team expects a strong performance for the bonds, Gysin said, noting high demand for other recent student housing deals and investor interest in Merrimack's previous issuances.
"Investors feel confident that the college will continue to produce," Gysin said. "Before our deal came to market, investors had contacted our desk trying to gain insight into Merrimack's next transaction."
