The State University of New York will sell a $328.5 million refinancing deal to create near-term financial flexibility to offset expected declines in student housing revenue stemming from the coronavirus pandemic.
SUNY is scheduled to sell the federally taxable dormitory facilities revenue bonds Tuesday through the Dormitory Authority of the State of New York. Proceeds of the negotiated offering, which will be led by book runner Siebert Williams Shank & Co., LLC, will be placed in escrow to pay $303.4 million of debt service in 2021 and 2022, with the rest save for future debt service payment. SUNY has $1.5 billion of outstanding dormitory facilities revenue bonds issued since 2013.
The deal is rated Aa3 by Moody’s Investors Service and A-plus by Fitch Ratings. Both assigned stable outlooks.
The SUNY refinancing is planned as the 64-campus public university system braces for declining enrollment this fall amid unknowns whether schools will be able to house students in residence halls, depending on COVID-19 infection rates. Most SUNY campuses are planning a combination of in-person and online classes, with contingency plans to shift to all virtual learning if the health crisis worsens.
“They are hedging themselves and giving themselves some flexibility amid the uncertainty with COVID,” said Fitch analyst Nancy Moore. “They are giving themselves some cushion.”
SUNY saw a 3% drop in tuition deposits as of June 1, compared to last year, and is expecting an overall enrollment decline for the 2020/21 academic year, according to bond documents. The system is projecting a $400 million operating revenue loss for the 2020 fiscal year, which ended June 30, after issuing roughly $135 million of dormitory fee refunds to students who were asked to leave campus in March at the onset of COVID-19 pandemic outbreak in the U.S.
The bonds selling Tuesday will not be used to cover the $135 million of refunds, which were paid from SUNY’s general fund, according to Moore. SUNY’s issuer rating is one notch higher than DASNY's at AA-minus by Fitch and Aa2 by Moody’s.
“SUNY is seeking to provide maximum flexibility over the next two academic years to deal with any COVID-related challenges that may occur,” said John Carter, senior managing director at Siebert. “This transaction equips them well to deal with COVID uncertainties.”
Moore said expectations of stable state support for SUNY through 2021 should offset softer enrollment figures. SUNY also received $183 million in federal funding from the CARES Act to mitigate some of the financial impact from COVID-19.
The SUNY press office did not immediately respond for comment on the transaction. SUNY is one of the largest public university systems in the U.S. with 198,458 full-time students enrolled in fall 2019, according to Fitch.
Bank of America is joint lead manager on the deal, which is expected to close on July 22. Hilltop Securities is financial advisor, with Nixon Peabody and D. Seaton & Associates serving as bond counsel.
