The University of Michigan (UM) announced this week that it's issued $2 billion in bonds, including...
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The University of Michigan (UM) announced this week that it's issued $2 billion in bonds, including $1.2 billion in the form of a century bond, which UM claimed was the largest bond of that type ever issued by a higher education institution. The sale marks the first time the university has issued a century bond, which is debt that needs to be repaid in 100 years rather than the more typical 30 years. The century bonds were priced at par with a 4.45% coupon. A second $500 million tranche of 30-year bonds was priced at par with a 3.5% coupon. Finally, $300 million was issued as a series of green bonds, also at 3.5%. Green bonds must be sold and used only to fund "green" capital projects that advance climate-related or environmental goals. The blended rate for the entire $2 billion transaction was 3.98%. The bonds will be used to finance several construction and renovation projects on the Ann Arbor campus, including: building three new undergraduate residence halls on North Campus, • continuing work on the new Michigan Medicine Clinical Inpatient Tower and replacing the Central Campus Recreation Building. Not only does the structure of the deal allow the university to lock in its debt at low interest rates for decades to come, the green bonds will enable it to pursue the goal of becoming a carbon neutral campus by 2040. Barclays served as the lead underwriter for the university, with Loop Capital Markets, a minority-owned investment bank based in Chicago, serving as the co-lead. The university was initially aiming to issue somewhere between $500 million to $700 million of century bonds, but demand was so great that it was able to make the final deal about twice as large. "Strong demand from investors, both in the U.S. and abroad, allowed the university to upsize the transaction beyond what was originally expected," said Geoff Chatas, the University of Michigan's executive vice president and chief financial officer. F Forbes Leadership 00:34 Is Default On The Table? 01:12 "Due to the confidence in the reputation, strength and stability of the university and an effective marketing campaign that successfully targeted a significant audience of international investors, we were able to generate more orders for bonds than were originally available," Chatas said. Century bonds began to be used by a few well-financed universities in the 1990s, and they have recently become more common among institutions in the Big Ten conference. The University of Minnesota has been authorized by its Board of Regents to issue $500 million in century bonds, and Michigan State University has made an issue in that amount. Rutgers University issued a $330 million century bond in 2019, and Ohio State University did one for $500 million in 2012. Now the question becomes whether other large institutions with strong financial positions will join the century bond crowd. Although the number of universities able to sell these kinds of bonds is limited, they do come with obvious advantages for both the institutions and investors. The former is able to make huge capital investments over an extended period of time, usually locking in low interest rates. And bond buyers, usually in the form of institutions like insurance companies and pension funds, can guarantee long-term returns regardless of tough market conditions. Follow me on Twitter. Michael T. Nietzel Follow I am president emeritus of Missouri State University. After earning my B.A. from Wheaton College (Illinois), I was awarded a Ph.D. in clinical psychology... Read More Editorial Standards ADVERTISEMENT Reprints & Permissions Read the attached article and answer the following questions 1. What is the total value of bonds issues by University of Michigan FORUM DESCRIPTION 2. What is the estimated interest cost of this bond issue for University of Michigan each year (think: P.R.T for each tranche and add them upl. Give your answer in 5 million 3. What is a series bond U Michigan Bond issue.pdf The University of Michigan (UM) announced this week that it's issued $2 billion in bonds, including $1.2 billion in the form of a century bond, which UM claimed was the largest bond of that type ever issued by a higher education institution. The sale marks the first time the university has issued a century bond, which is debt that needs to be repaid in 100 years rather than the more typical 30 years. The century bonds were priced at par with a 4.45% coupon. A second $500 million tranche of 30-year bonds was priced at par with a 3.5% coupon. Finally, $300 million was issued as a series of green bonds, also at 3.5%. Green bonds must be sold and used only to fund "green" capital projects that advance climate-related or environmental goals. The blended rate for the entire $2 billion transaction was 3.98%. The bonds will be used to finance several construction and renovation projects on the Ann Arbor campus, including: building three new undergraduate residence halls on North Campus, • continuing work on the new Michigan Medicine Clinical Inpatient Tower and replacing the Central Campus Recreation Building. Not only does the structure of the deal allow the university to lock in its debt at low interest rates for decades to come, the green bonds will enable it to pursue the goal of becoming a carbon neutral campus by 2040. Barclays served as the lead underwriter for the university, with Loop Capital Markets, a minority-owned investment bank based in Chicago, serving as the co-lead. The university was initially aiming to issue somewhere between $500 million to $700 million of century bonds, but demand was so great that it was able to make the final deal about twice as large. "Strong demand from investors, both in the U.S. and abroad, allowed the university to upsize the transaction beyond what was originally expected," said Geoff Chatas, the University of Michigan's executive vice president and chief financial officer. F Forbes Leadership 00:34 Is Default On The Table? 01:12 "Due to the confidence in the reputation, strength and stability of the university and an effective marketing campaign that successfully targeted a significant audience of international investors, we were able to generate more orders for bonds than were originally available," Chatas said. Century bonds began to be used by a few well-financed universities in the 1990s, and they have recently become more common among institutions in the Big Ten conference. The University of Minnesota has been authorized by its Board of Regents to issue $500 million in century bonds, and Michigan State University has made an issue in that amount. Rutgers University issued a $330 million century bond in 2019, and Ohio State University did one for $500 million in 2012. Now the question becomes whether other large institutions with strong financial positions will join the century bond crowd. Although the number of universities able to sell these kinds of bonds is limited, they do come with obvious advantages for both the institutions and investors. The former is able to make huge capital investments over an extended period of time, usually locking in low interest rates. And bond buyers, usually in the form of institutions like insurance companies and pension funds, can guarantee long-term returns regardless of tough market conditions. Follow me on Twitter. Michael T. Nietzel Follow I am president emeritus of Missouri State University. After earning my B.A. from Wheaton College (Illinois), I was awarded a Ph.D. in clinical psychology... Read More Editorial Standards ADVERTISEMENT Reprints & Permissions Read the attached article and answer the following questions 1. What is the total value of bonds issues by University of Michigan FORUM DESCRIPTION 2. What is the estimated interest cost of this bond issue for University of Michigan each year (think: P.R.T for each tranche and add them upl. Give your answer in 5 million 3. What is a series bond U Michigan Bond issue.pdf
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