Penn State Trustees Approve New Bond Issue

11-7-97
University Park, Pa. -- Penn State's Board of Trustees approved a resolution to increase the University's long-term debt by $101 million to be used only for projects that clearly advance the University's mission.

"The last time a similar proposal was brought to the Board of Trustees for approval was in May 1990 for a bond issue of $75 million. Since that time the University has not issued any new debt through long-term bonds because we maintain a cautious attitude toward debt," said Gary C. Schultz, senior vice president for finance and business/treasurer.

Proceeds from the bond issue will help finance the five-year capital plan announced by President Graham B. Spanier in May. The capital plan will cost approximately $475 million, about $200 million (roughly $40 million a year for the next five years) of which has been committed by the Commonwealth. The balance of $275 million is to be provided from funds available to the University, including about $50 million in gifts. A number of the capital plan projects qualify for tax-exempt bond financing.

In addition to being central to the University's mission, Schultz said that the decision to undertake a long-term debt is based on the principles that there be a measurable and predictable stream of revenue to pay back the debt over no more than 25 years, and that any new debt should not adversely affect the University's credit rating.

Moody's increased Penn State's bond rating in June 1997 from A1 to AA3 with the note that the University planned to issue about $100 million in new debt shortly, and Standard and Poor rates Penn State at AA-.

"Both of these ratings are very good and the recent upgrade by Moody's will allow us to achieve more favorable interest rates," Schultz said. "Current market conditions are attractive and our financial advisors project that an 'all-in-cost' for a bond issue at this time will be between 5.4 to 5.5 percent."

The University's current long-term bonds payable as of June 30, 1997, excluding Penn College, was $379.6 million. The University plans to issue bonds for $115 million, $14 million of which will go to refunding the 1992 Series B Bonds, bringing the total long-term debt to $480.6 million.

"We plan to use the bond proceeds to finance, at least partially, the following projects. Each of these will go through, the normal Board of Trustees approval process," added Schultz. The portions of the projects to be financed by the bond issue are:

-- HUB/Robeson Center -- $21.4 million

-- Indoor Track and Multi-Sport Facility -- $9 million

-- Behrend College Residence II -- $5.9 million

-- White/HUB Connector --$ 7.2 million

-- Berks-Lehigh Valley College Residence at Berks I -- $5.8 million

-- McCoy Natatorium Addition-- $7 million

-- East Area Locker Room -- $1.4 million

-- Capital College Housing -- $8.5 million

--Football Training Facility -- $12.7 million

-- Berks-Lehigh Valley College Residence II at Berks -- $6.1 million

-- Berks-Lehigh Valley College at Berks Dining Hall -- $1 million

-- Capital Improvement and Capital Equipment projects -- $15 million

Schultz concluded by saying, "Committing to $101 million in additional long-term debt at this time is consistent with our debt management principles, will allow the University to take advantage of favorable market conditions and will ensure sufficient low-cost financing to accomplish many of Penn State's important capital projects."

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Contact: Christy Rambeau (814) 865-7517 (office) (814) 237-9046 (home) cmr7@psu.edu