Problems Mount for the ‘Other’ College Debt

As education providers look to tap bond markets amid low rates, some investors grow wary

by Melissa Korn and Adam Kuriloff, Wall Street Journal, October 8, 2015 (excerpt)

...Concerned about volatility in the public markets, some low-rated colleges and universities have been pursuing alternatives to bond issuance, such as placing debt privately or borrowing directly from banks, says Lorrie DuPont, head of the higher education finance group at RBC Capital Markets.

Hawaii Pacific University, a private school with campuses in Honolulu and Kaneohe, Hawaii, opted in January for short-term bonds to finance the renovation of a waterfront property, hoping that it can refinance the debt once its credit rating—currently BB-plus by Standard & Poor’s—improves. The school expects that the renovation will yield new retail and housing revenue.

The school borrowed $32.5 million in a five-year deal at a 4.48% yield. Bruce Edwards, vice president and chief financial officer, estimates that had the institution opted for a more traditional 30-year bond, it would have paid “a little bit north of 6%.”

All the school’s new debt was bought by Nuveen, which had acquired a chunk of the school’s $42 million issuance in 2013. While other investors expressed interest, “they were going to need to do some lengthy due diligence” and the school was looking for a fast close since construction was already under way, Mr. Edwards said, and construction deadlines outweighed questions over potential improvement in market conditions later in the year....

read ... The 'Other' College Debt