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Case Studies

 
Capital Financing Program Case Studies  
The following case studies describe HBCU Capital Financing Program loans that involved the Rice Capital Access Program (RCAP) or key personnel at RCAP.
Bennett College for Women
$21,000,000
Clark Atlanta University
$20,000,000
Florida Memorial University
$28,000,000
Talladega College
$12,000,000
Tuskegee University
$28,000,000
 
Additional HBCU Case Studies
The following case studies are examples of other financing projects Rice staff has assisted with on behalf of HBCU institutions outside of the HBCU Capital Financing Program.
Jackson State University
$66,405,000
Morehouse College
$45,300,000
Pennsylvania Economic Development Financing Authority (Lincoln University of the Commonwealth System of Higher Education)
$41,140,000

See a complete list of HBCU loan recipients.

Bennett College for Women ($21,000,000)

Bennett CollegeSubject to a request by the President and Vice President for Business, Finance and Technology of Bennett College for Women for a loan to construct (i) a new 144-bed Honors Residence Hall with four guest apartments; (ii) a multi-purpose Global Learning Center, which is an academic facility; (iii) a Wellness Complex comprised of intramural athletic fields; (iv) a Children’s House/Intergenerational Center, which is an academic building; and (v) selected renovation of campus buildings, Bennett College for Women was approved for the HBCU Capital Loan Program for a Loan Commitment Amount of $21,000,000. The HBCU loan is a general obligation of the College and payable from all legally available funds as revenues. The obligation is on parity with the existing HBCU loan.

The HBCU loan was structured as two bonds. The Variable Rate Bond will provide financing for the Honors Residence Hall. The Fixed Rate Bond will provide financing for the Global Learning Center, Wellness Complex, Children’s House/Intergenerational Center, and selected renovation of campus buildings. Both bonds will fund pro-rata shares of the reserve fund and transaction costs. The College received very competitive interest rates - the corresponding Treasury rate plus an additional 22.5 basis points. In the case of the fixed rate bonds, Bennett’s rate was 3.65% (30-year U.S. Treasury Bond) +.225% for a total of 3.875%, and .183% (6-month Treasury Bill) + .225% for a total of .408% for the variable rate bonds.


Florida Memorial University ($28,000,000)

Subject to a request by the President and Vice President for Business, Finance and Fiscal Affairs of Florida Memorial University for a loan to construct a new student dormitory of approximately 485 beds and refund all currently outstanding indebtedness, namely Series 2003, Miami-Dade County Educational Facilities Authority (Florida) Variable Rate Demand Bonds (Florida Memorial College) and the swaps associated with (i) the refunded Series 1998 Miami-Dade County Educational Facilities Authority Variable Rate Demand Bonds and (ii) the aforementioned Series 2003 bonds, Florida Memorial University was approved for the HBCU Capital Loan Program for a Loan Commitment amount of $28,000,000. The University proposed to build a new student housing project of traditional suite-style and apartment-style units to address important student housing needs, including providing modern amenities to students on campus, helping reduce expenses and enhancing revenues, and addressing demand. The HBCU loan will be a general obligation of the College and payable from all legally available funds as revenues. The obligation will be on parity with all other outstanding debt of the University.

The HBCU loan was structured as one fixed rate bond. The University received a competitive interest rate of 3.713% (30-year U.S. Treasury) +.225% for a total of 3.938%.


Talladega College ($12,000,000)

Subject to a request by the President and Vice President for Administration and Finance of Talladega College for a loan to (i) refund existing Series 2005 A & B Bonds (including a $2.5 million investment release to College’s Endowment Fund) and retire certain outstanding notes payable, and (ii) finance certain capital improvements to the Talladega campus, the College was approved for the HBCU Capital Financing Program for a loan commitment amount of $12,000,000. The refinancing is expected to generate debt service savings averaging approximately $131,000 annually. The new money portion will provide a portion of the funds to make needed renovations to campus dormitories (including, but not limited to Ish, Shores, Crawford, and Foster Halls).

The HBCU loan will be a general obligation of the College and payable from all legally available funds as revenues. The HBCU loan was structured as one fixed rate bond. The College received a competitive interest rate of 3.65% (20-year U.S. Treasury) +.225% for a total of 3.875%.


Tuskegee University ($28,000,000) and Clark Atlanta University ($20,000,000)

In May 2007, Rice Financial served as structuring agent/financial advisor for Tuskegee University (AL) and for Clark Atlanta University (GA) in relation to the U.S. Department of Education’s HBCU Capital Financing Program. Both universities utilized the funds to retire non-callable taxable debt and to fund new money projects.


Jackson State University ($66,405,000)

In October 2008, the Jackson State University Educational Building Corporation implemented a financing plan with Rice Financial that converted its outstanding variable rate bonds to a fixed rate through maturity (Forward Starting Floating to Fixed Swap Program: $22,375,000 Series 2004B Educational Building Corporation Bonds, $44,030,000 Series 2007 Educational Building Corporation Bonds).

At the time, Jackson State had outstanding the Series 2004B Auction Rate Securities and Series 2007 Variable Rate Refunding Bonds. The Series 2004B Bonds were fixed at a long-term fixed rate of 5.00% through March 1, 2011, at which time those bonds will be remarketed at the then-existing market rates. The Series 2007 Bonds were issued with an initial fixed rate of 5.00% and a mandatory tender date of March 1, 2015, at which time they also will be remarketed at the market rates in effect at that time.

  1. Rice Financial proposed a strategy to create permanent fixed rates for the Series 2004B and Series 2007 Bonds at 5.00% through the maturity dates of the respective bond issues.
  2. Jackson State implemented two forward-starting floating to fixed interest rate swaps with Rice Financial to achieve this goal. Under the swaps, Jackson State will receive the SIFMA Index to offset the anticipated variable rate costs on the Series 2004B and Series 2007 Bonds after those bonds are remarketed on their respective tender dates. Jackson State will pay a fixed rate of 5.00% on both the Series 2004B and Series 2007 interest rate swaps through bond maturity. On the respective mandatory tender dates, Jackson State will issue variable rate bonds that will be automatically swapped to the fixed rate. Jackson State received a $2.0 million upfront payment by structuring the 5.00% rate through maturity on both outstanding issues.
  3. The overall goal of the financing was to create a long-term fixed cost of funds for the University. By implementing the swap program, although the underlying bonds may be remarketed in a variable rate mode, the University has eliminated the impact of fluctuating debt costs associated with the underlying bonds on its financial statements.


Morehouse College ($45,300,000)

On May 22, 2007, Rice Financial senior managed a $45,300,000 Development Authority of Fulton County, Georgia, revenue bond transaction for Morehouse College.  The purpose of the issue was to refund the College’s Series 1995 and Series 2000 Bonds and provide bond proceeds for a new Welcome Center, including a 420-space parking deck and the construction of the Ray Charles Performing Arts Center, a 70,000-square-foot, two-story performance hall. In structuring this issue Rice needed to meet the Board of Trustees’ mandate of a minimum of 5% present value savings from the refunding component and provide the College the flexibility necessary to continue fundraising efforts for the Performing Arts Center.

Morehouse College was founded in 1867 as the Augusta Institute in Augusta, Georgia.  The Institute’s mission is to provide students a comprehensive academic, social, and spiritual experience that prepares them for leadership and success in the larger society.  Today, Morehouse College is the nation’s largest liberal arts college for men, with an international reputation for producing leaders (including three Rhodes Scholars) who have influenced national and world history. Morehouse has conferred bachelor’s degrees on more black men than any other college or university in the United States. The 61-acre campus, located just three miles southwest of downtown Atlanta, includes 40 buildings, including 12 dormitories, 10 academic buildings, an international chapel, a campus center, and an executive center, which also houses the president’s residence.

Morehouse College is a unique credit—it is a single-sex institution as well as one of the nation’s Historically Black Colleges and Universities. 

  1. Rice Financial was able to develop a credit profile that addressed the rating agencies’ concerns over demand and the College’s market position to secure “A/A2” ratings. 
  2. Moreover, the rating agencies indicated that with increased fundraising efforts, the College was poised for an upgrade.
  3. After securing the ratings, Rice Financial was able to assist the College in securing “AAA” credit enhancement with very few covenants.  Those efforts allowed us to aggressively price the bonds in a declining market and achieve all of the College’s objectives.

Pennsylvania Economic Development Financing Authority
(Lincoln University of the Commonwealth System of Higher Education)
($40,140,000 )


In the spring of 2004, William Fisher was sought out by Lincoln University and the U.S. Department of Education to intervene on an existing $13.85 million loan that priced in October 1999 for the Urban Center, also referred to as 3020 Market Street. The facility is located in downtown Philadelphia near Drexel University and did not meet the definition of a “qualified capital project” under the Program. Commerce Bank, the Designated Bonding Authority at the time, demanded that the property be sold immediately. The University was skeptical of this demand given that Drexel University had just sent an unsolicited offer to Lincoln University to purchase the property. The matter was further complicated by the fact that Drexel University and Commerce Bank shared several common board members.

Mr. Fisher performed a comprehensive analysis of the University’s fiscal position and determined the University could access the capital markets and refinance the outstanding HBCU loan. A request was made to Commerce Bank for an extension before declaring a default for a “non-conforming” loan. Commerce Bank rejected that request, and Mr. Fisher, on behalf of the University, presented the case to the Department. After long negotiations, all parties agreed to a plan whereby over the next 13 years the property would be converted into a facility that would meet the definition of a qualified capital project. In the interim, the University and the Department decided to pursue the “Longanecker Doctrine,” a process developed by the former Assistant Secretary for Post Secondary Education allowing an institution to seek an alternative financing source with the Department’s support and utilize that source if the HBCU Capital Financing Program could not match the terms of that financing. The following is the result of that process.

On June 2, 2004, the Pennsylvania Economic Development Financing Authority issued $30,230,000 Revenue Bonds, Series 2004A, and $9,910,000 Federally Taxable Revenue Bonds, Series 2004B. The 2004A Bonds were issued to provide funds to:

  • Finance a two-phase, 400-bed dormitory on the campus of the Lincoln University of the Commonwealth System of Higher Education,
  • Refinance approximately $4.0 million of the outstanding aggregate principal amount of a loan from the Educational Direct Loan Mortgage Corporation (an HBCU Capital Financing Program Loan) to the University,
  • Fund capitalized interest and a portion of a debt service reserve fund for the 2004 Bonds, and
  • Pay the costs of issuance on the 2004A bonds.

The 2004B Bonds were issued to provide funds to:

  • Refinance approximately $9.1 million of the outstanding aggregate principal amount of the loan from the Educational Direct Loan Mortgage Corporation to the University,
  • Fund the remaining portion of a debt service reserve fund for the 2004 Bonds, and
  • Pay the costs of issuance of the 2004B Bonds.

William Fisher, serving as Financial Advisor, and advised the University of its options to secure the optimal financing structure available. “Optimal” in the University’s case was not only the structure producing the lowest cost of capital, but also the structure that fell within the financial covenants imposed by the lender. The University received two proposals that met those criteria, from Wachovia Securities and the HBCU Capital Financing Program. Mr. Fisher compiled two analyses for the University: Comparison of key cost components of both the HBCU Loan and the Wachovia proposals, and comparison of Intangible factors – optional redemption features, interest earnings on bond funds, cross-collateralization of the DSRF, and security interest. Based on the analyses, Mr. Fisher concluded that the financing proposed by Wachovia Securities was the preferred option for Lincoln University.