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Bond Issue Raises $190 Million to Support Capital Projects at U.Va.

July 21, 2010 — The University of Virginia today issued $190 million worth of bonds to support capital projects, again backed by the highest possible ratings from the three major credit rating agencies.

The bond issue – the University's second major issuance in 15 months – will help finance 16 projects, including:

•    Construction of the 11th Street parking garage;
•    Construction of the new Alderman Road student housing facilities;
•    Expansion of the University Bookstore;
•    Construction of the Carter-Harrison Research Building;
•    Construction of the Emily Couric Cancer Center;
•    Construction of the College of Arts & Sciences Research Building;
•    Expansion and renovation of the University Hospital;
•    Construction of the Information Technology and Communications Data Center Building;
•    Improvements to Jordan Hall's HVAC system;
•    Construction of connectors between the University Hospital and parking garages, including a bridge and escalator;
•    Environmental compliance improvements at the Main Heating Plant;
•    Renovations at Newcomb Hall;
•    Construction of the Engineering School's Rice Hall;
•    Improvements to Scott Stadium;
•    Renovation of Garrett Hall to serve as the home of the Frank Batten School of Leadership and Public Policy;
•    Upgrades to the student system computer project.

As in April 2009– when $250 million in bonds were issued to support 19 projects – the University again sold the bonds through the Build America Bonds program, created by the American Recovery and Reinvestment Act. Under the program, the federal government covers 35 percent of the interest on the bonds.

Today's market was very favorable, said Yoke San Reynolds, vice president and chief financial officer. The University's bond rating team came into the issue expecting to receive five or six offers; instead, they got nine.

Last year's issuance was at a taxable rate of 6.2 percent; today's was priced at a taxable rate of 4.9 percent, and after the federal subsidy, the effective interest rate to the University is 3.2 percent. The savings compared to a tax-exempt deal – the University's other alternative for selling bonds – will amount to approximately $45.6 million over the bonds' 30-year term, according to Jim Matteo, assistant vice president for treasury management and fiscal planning.

"The bids were within a tight band, indicating good pricing," Reynolds said. "As our financial adviser would say, it was an orderly market."

The taxable interest rate may be a record, she said. "None of us can remember a taxable rate for a 30-year bond being below 5 percent."

"The University is fortunate to have strong AAA bond ratings and those ratings helped us in this competitive offering," said Leonard W. Sandridge, executive vice president and chief operating officer. "The strength of the University's academic programs, student demand, endowment performance and operating results of the Medical Center contributed to the successful outcome.

"Our debt team, led by Yoke San Reynolds and Jim Matteo, and the strong support of the Board of Visitors proved to be important throughout the process."

 Typically, the University prefers to wait at least 18 months between bond issuances, Reynolds said. However, with the Build America Bond program expiring at the end of the calendar year, the Board of Visitors approved an earlier issuance to beat an anticipated end-of-year glut of offerings, she said.

The credit rating agencies appeared to have no trouble with the University's debt. After presentations to all three major agencies – Moody's Investors Service, Fitch Ratings and Standard & Poor's – on June 22 and 23 in New York City, all three gave the bond issue their highest "triple-A" ratings. U.Va. is one of two American public universities to hold the "triple-triple" rating, the other being the University of Texas system.

Incoming U.Va. President Teresa A. Sullivan participated in the credit ratings presentations, Reynolds said.

In their ratings summaries, all three agencies cited U.Va.'s diverse revenue sources, student demand for admission, the successful progress of the $3 billion capital campaign and the University's manageable debt load as major contributing factors to their favorable ratings.

— By Dan Heuchert

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