|SBU plans bond sale to aid debt payment
Sept. 11, 1998
By Peter Kendron
A plan to sell up to $25 million in bonds could allow the university to lower interest payments on its debt and put extra money into maintenance.
The university aims to make bonds available toward the end of October or early November. Preliminary plans indicate the university will sell the bonds in $5,000 denominations, said Donald Zekan, vice president for business and finance.
The university plans to issue the bonds through the County of Cattaraugus Industrial Development Agency to make them tax exempt.
"We've been urging St. Bonaventure for nine or 10 months to hold a bond sale because of the extremely attractive interest rates," said Norman Leyh, executive director of the agency.
Cattaraugus County needs St. Bonaventure, Leyh said, explaining why the agency has urged the bond issue. "There's a lot of people in the area dependent on St. Bonaventure. It buys bread. It buys vehicles. It's a major money mover."
Many schools have refinanced their debts in recent months, including Gannon University and Houghton College, Leyh said.
Currently, the university pays between 7.5 and 8.2 percent interest on its various debts. By using proceeds from the bond sale to refinance its debt, the school could cut its interest payments to around 5.5 or 6 percent. That would save the university "a couple hundred thousand dollars," Zekan said.
The university has approximately $20 million in total debt. According to its budget, in fiscal 1997 the university paid roughly $2.8 million on the debt and its interest. The approved budget calls for a payment of approximately $2.9 million for fiscal 1998.
Investors who buy bonds receive interest on their investment until the date the bond is due, when they receive the principle back. St. Bonaventure plans to pay back its bonds over a 15-year period.
Depending on the amount of bonds investors are willing to buy, the university might also use money from the sale for deferred maintenance projects such as replacing windows in residence halls or, if the Decades for Devereux campaign does not raise enough, renovating the showers in Devereux Hall, Zekan said.
First Albany and Fleet Bank are underwriting the bond project.
The university has a "BBB-" credit rating, the lowest rating the investment firm Standard & Poors considers "investment quality." This means investors take a risk when they purchase a St. Bonaventure bond as opposed to a bond from a college with a higher credit rating such as Harvard University, Zekan said.
"Investors are attracted to us because we pay a higher interest rate than other schools. I feel we're better than our rating. Even during our worst years of financial crisis, we never missed a bond payment," he added.