Princeton to bring $300M corporate CUSIPs, $300M exempts

Triple-A Princeton University brings $600 million of exempt and corporate CUSIP debt on Tuesday, joining other highly rated, well-known private universities in tapping the corporate market to diversify their debt portfolios.

The New Jersey Educational Facilities Authority will price the $300 million tax-exempt portion and the issuer will price the $300 million corporate CUSIPs. The tax-exempt bonds have $150 million maturing in 2027 and $150 million in 2032 and are not callable. The taxables are bullet maturities in 2052, subject to a make-whole call. 

"The university issues taxable bonds due to greater flexibility in the use of proceeds and to ensure that we are fully in compliance with IRS regulations," noted Michael Hotchkiss, director of media relations for Princeton. "Princeton is a 501(c)(3) organization, and as such, for directly issued taxable debt, along with other private universities (Harvard, Columbia, MIT, etc.) we must use a corporate CUSIP, unlike public universities (UVA, Michigan, California, etc.), which can use a muni CUSIP."

Ramirez & Co. is the senior bookrunning manager on the tax-exempt bonds. Loop Capital Markets will run the books on the corporate CUSIP deal and co-manage the exempt portion. 

The Yuba Group is the financial advisor to the university for both deals. McManimon, Scotland & Baumann, LLC, is bond counsel to the New Jersey Educational Facilities Authority. Ballard Spahr is the legal counsel to the university. 

Princeton University, Office of Communications

“Princeton is not alone in having tapped the corporate market,” Patrick Luby, senior municipal strategist at CreditSights, said. “M.I.T., Harvard, Northwestern, Stanford, Duke, and Yale all have at least $1 billion of corporate-CUSIP debt outstanding. As a larger, deeper, and more liquid market than the taxable muni market, I think that the university will be able to access demand from a larger (and global) pool of potential investors.”

Moody’s Investors Service and S&P Global Ratings each rates Princeton triple-A with a stable outlook. 

Moody’s cited Princeton’s substantial wealth in its rating. The university’s investment portfolio was $38.7 billion, growing 47% in fiscal 2021, which ended June 30.

"The endowment has, and continues to be, a significant contributor to our operating budget, which supports one of the most generous financial aid programs in the country," Hotchkiss said. "Like the rest of higher education, the university carefully manages its liquidity to protect operations and preserve endowment through any adverse market conditions. Even during the financial crisis in fiscal 2009, when most endowments were down 20% or more, Princeton maintained its triple-A ratings and was able to continue funding operations and capital projects without any issues or interruptions.”

Moody's also cited the university’s international reputation and strong student demand, with the university granting admission to only 4% of applicants for the 2021-2022 school year. 

The university has “rigorous” strategic and financial planning as well as consistently positive operating results and “ample” liquidity, Moody’s said. 

From fiscal 2017 to fiscal 2021 there were net operating increases of 10.9% compared to total revenue in 2017, 14.6% in 2018, 18.9% in 2019, 17.3% in 2020, and 14.9% in 2021. Princeton’s fiscal year ends on June 30 of the named year. 

“The primary risk facing the university is a significant, sustained downturn in financial markets given the university’s comparatively high reliance on investment income and gifts,” Moody’s said.

As of June 30, 2021, Princeton University had $3.55 billion in debt. Over the five fiscal years starting in fiscal 2022 Princeton expects total debt service per year of between $214 million and $235 million.

Princeton had $44.5 billion in assets and $5 billion in liabilities, on June 30, 2021. 

In fall 2021, the school had 5,240 undergraduate students and 3,142 graduate students. The university plans to add 125 undergraduates a year for four years beginning in fiscal 2023 to lead to an expansion of 500 undergraduates.

Over the last five years the school has received an average of $333 million per year in gifts from alumni. 

S&P cited similar financial strengths as did Moody’s in explaining its rating. As “partly offsetting rating factors” it cited, “significant debt load,” “a sizeable bullet maturity in 2039 related to the series 2009 debt issued for liquidity purposes during the financial crisis,” and a “high reliance on endowment spending for operating revenues, equal to about 61% of operating revenues for fiscal 2021.”

Princeton last venture in the market was a $250 million competitive loan in March 2021 where it was priced through triple-A benchmarks. It last sold corporate CUSIPs in 2020.

“As a world-renowned university with an enormous endowment, we expect good demand for Princeton bonds,” Luby said. “The school does have other corporate bonds outstanding, so there is an existing constituency of investors."