Cornell University to bring $1.1 billion, nearly half in taxable

Cornell University plans to bring two deals totaling $1.11 billion, almost half of it taxable corporate CUSIP securities, this week and next, joining other prestigious universities in tapping the muni market after holding back on issuance over the past few years.

The university is expected to bring the $500 million Series 2024B taxable bonds to market Thursday. It will mature on June 15, 2034, with an option to redeem with a make whole call/par call three months prior. Goldman Sachs & Co. is the lead underwriter and BofA Securities as the co-manager.
 
“I expect very strong demand for the taxable bonds,” said Pat Luby, CreditSights senior municipal strategist. Luby noted the recent redemptions of Build America Bonds “is creating demand for reinvestment of the BABs call proceeds among investment grade credit buyers, who seek the addition of non-corporate credit risk to their portfolios to diversify their risks.”

The taxable bonds will have a corporate CUSIP. Nonprofit higher education institutions have been issuing more taxable bonds, including the use of corporate CUSIPs, in recent years.

The university will also price via the Dormitory Authority of the State of New York a $610 million tax-exempt Series 2024A deal on April 10. BofA Securities is the lead underwriter and Drexel Hamilton, JPMorgan, Loop Capital Markets, PNC Capital Markets, Ramirez & Co., TD Securities, US Bancorp, and Wells Fargo Securities are co-managers.

The tax-exempts mature in July 2054, with an optional par call in July 2034.

Higher education issuance is on the rise after several years of constrained issuance, noted Lisa Washburn, chief credit officer at Municipal Market Analytics, Inc.

“Issuers in the sector tend to have significant capital needs that cannot be put off indefinitely,” Washburn said. “Cornell hasn’t issued long-term bonds since the early days of the pandemic so it’s not surprising that they are tapping the market with a large issue like other recent highly rated colleges.”

While first quarter issuance for the higher education sector is about half the total par issued in each of the past few years, this year the interest rate environment “is relatively more stable as the Fed contemplates whether to hold or reduce rates, likely leading more to issue debt,” Washburn added.

Since Cornell has not been in the market with tax-exempts for several years, Luby said he expects “good in-state demand for the bonds, but there will also be national demand from investors who do not already have the school’s bonds in their portfolios.”

Both deals are rated Aa1 by Moody’s Ratings and AA by S&P Global Ratings.

The Yuba Group is municipal advisor to both deals. Ropes & Gray is counsel to the taxable deal and Orrick and Holley & Pearson-Farrer are counsel to the tax-exempt deal.

Moody’s pointed to the university’s “superior market strength as a highly selective university;” the university’s $11.5 billion of long-term investments and daily liquidity; its sizeable, “renowned,” and growing research activities; and diverse revenues sources, as reasons for its Aa1 rating.

“Tempering these strengths are rising payroll and other expenses facing Cornell and its patient care operations through its faculty practice plan, the latter which accounts for about-one quarter of university revenues,” the agency said.

Operating revenue increased 25% in nominal terms and 5% after inflation from fiscal 2019 to fiscal 2023, according to Cornell.

For its AA rating, S&P cited similar factors to Moody’s, adding that the school has a “modest debt burden.”

Cornell is one of the Ivy League schools and has more than 16,000 undergraduates and about 11,600 graduate and professional students. Admission acceptance rates for undergraduates went from 10.9% in 2019 to 7.9% in 2023 and for graduate students from 24.9% to 22.5% in the same years.

Cornell set out to raise $5 billion in contributions from fiscal 2019 through fiscal 2026 and by March 11 this year had already raised $4.62 billion.

The university plans to use most of the tax-exempt bond to refinance its Series 2000A, 2004A&B, 2019B&C, 2020B, C & D bonds and taxable commercial paper. It says it plans to use the taxable bond for “general corporate purposes.”

After issuance of the Series 2024A and B bonds, Cornell expects net university debt to rise by about $500 million. Total debt at the end of fiscal 2023 stood at $2.5 billion, according to Moody’s.

At the same date, days cash on hand was 205; the ratio of total debt to earnings before interest, depreciation, and amortization was 4; and annual debt service coverage was 5.9; according to Moody’s.

Cornell’s main campus is in Ithaca, N.Y. The Weill Cornell Medicine hospitals, medical school, and graduate biomedical program and the Cornell Tech technology-related graduate school are in New York City. Weill Cornell also has a campus in Qatar.