The University of Michigan has successfully issued $2 billion in bonds to finance planned future construction and renovation projects, including $1.2 billion as a century bond, the largest of its kind ever issued in the higher education sector.
The deal marks the university’s first issuance of a century bond, which is structured to be repaid in 100 years instead of the more traditional 30 years.
Barclays was the lead underwriter for the university, and Loop Capital Markets, a minority-owned investment bank, acted as co-lead.
The university priced the bonds this week at a rate of 4.45 percent for the century bonds and 3.5 percent for the 30-year bonds, or a blended rate of 3.98 percent for the entire $2 billion issuance.
“Strong demand from investors, both in the U.S. and abroad, allowed the university to upsize the transaction beyond what was originally expected,” said Geoff Chatas, executive vice president and chief financial officer.
The Board of Regents approved a resolution in February granting authorization for the issuance of up to $2 billion in general revenue bonds. Given volatility in the markets, the university initially went to market with a $1.5 billion offering.
“Due to the confidence in the reputation, strength and stability of the university and an effective marketing campaign that successfully targeted a significant audience of international investors, we were able to generate more orders for bonds than were originally available,” Chatas said.
“This oversubscription allowed us to place the full $2 billion in bonds, with $1.2 billion of that coming as a century bond. This is a fantastic outcome for the university considering the volatility in bond markets.”
The deal provides the university a great opportunity to prefund planned debt needs for capital projects at historically low interest rates for years to come, Chatas added.
Some of those projects include the construction of three new undergraduate residence halls on North Campus, continued work on the new Michigan Medicine Clinical Inpatient Tower and replacing the Central Campus Recreation Building.
“Regardless of where market rates go from here, this committed funding will provide long-term rate stability for the university,” he said.
In addition to the century bond, $300 million of the transaction was issued as a series of green bonds, another first for U-M. Green bonds can only be sold and used to fund “green” capital projects that support climate-related or environmental goals.
At U-M, that includes a number of projects aligned with recommendations made by the President’s Commission on Carbon Neutrality, such as plans to build a geothermal heating and cooling system for the Leinweber Computer Science and Information Building.
“We believe that the size of and detail provided with this series of green bonds made clear to the market what we all already know —the University of Michigan is committed to taking serious action related to reducing its carbon footprint,” Chatas said.