Purdue University trustees price $72M, including BABs refunding

The Purdue University Trustees priced $72.43 million of student fee bonds Tuesday, joining other issuers in refunding some of the university’s outstanding Build America Bonds.

Lead managers Jefferies and Ramirez & Co. priced the deal Wednesday, with Wells Fargo Securities serving as co-manager. The municipal advisor is Blue Rose Capital Advisors. Bond counsel is Ice Miller LLP.

The bonds refunded two earlier series of student fee bonds: the taxable Series Z-2 Build America Bonds and the tax-exempt Series BB-1 bonds. 

The Series 2024 GG refunding bonds were priced to yield 3.25% with a 5% coupon maturing in July 2024, 2.65% with a 5% coupon in 2034 and 2.76% with a 5% coupon in 2035, noncallable.

The move to replace Build America Bonds with tax-exempt debt has drawn investor protests elsewhere, with the holders of Regents of the University of California BABs challenging the legality of the extraordinary redemption provisions being triggered. 

Purdue Senior Director for Capital Markets Nicole Michienzi declined to comment.

Moody’s Ratings assigned a Aaa rating to the bonds with a stable outlook. It also affirmed Purdue’s Aaa issuer rating, pointing to Purdue’s scale and scope of operations as one of Indiana’s major public universities. Purdue’s healthy operating performance derives from its consistent revenue growth and careful expense management, Moody’s said, with its increasing liquidity and financial reserves a testament to the university’s sound financial management. 

Contributing to the Aaa rating on the bonds are the “substantial pledges” backing the securities, Moody’s said. The stable outlook derives from expectations of continued high demand from students and robust research activity at the university.

S&P Global Ratings has rated the bonds AAA with a stable outlook, and affirmed its AAA rating on the university’s SFBs outstanding, certificates of participation and SFSRBs. The rating agency also affirmed its AAA/A-1+ rating on Purdue’s variable rate demand bonds.

The rating agency noted Purdue’s rising enrollment, strong demand metrics, “excellent” balance sheet and positive adjusted operating margins. It also cited Purdue’s “co-flagship position” in Indiana, its ample financial resources, low leverage, low debt burden, operating surplus and strong fundraising record.

S&P Director Mary Ellen Wriedt noted that Purdue “is not increasing the overall debt load,” but “we believe the university, with an extremely strong financial risk profile, including a low debt burden and robust financial resources, has capacity for some additional debt at the current rating.” 

Purdue is among the financially healthier universities in the Midwest, with a robust endowment — it had a market value of $3.794 billion in 2023 — that, while a fraction of the Harvard University endowment, when combined with its prudent fiscal management, adds up to a strong position. 

“Across the range of peer institutions, Purdue’s financial resource ratios relative to both operations and debt compare favorably to medians for all ‘AAA’ rated public universities,” Wriedt said.

The bonds are secured by a pledge of and first lien on student fees; the moneys on deposit in funds pledged under the indenture; and payments to the Purdue trustees from swap providers pursuant to qualified swap agreements. However, the Purdue trustees are not presently party to any such swap agreements.

Purdue had $1.2 billion of debt outstanding at the end of fiscal 2023, and will have about $1.3 billion of debt after this issuance.