Minneapolis, MN | December 12, 2023 | John Elliott, Assistant Vice President and Chief Compliance Officer
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Comparable Issues Commentary
Shown below are the results of two higher education financings that priced in the month of October. On October 17th, Michigan Technological University (“MTU”) priced its tax-exempt General Revenue Bonds, Series 2023C. Two days later, the Colorado School of Mines (“CSM”) priced its tax-exempt Institutional Enterprise Revenue Bonds, Series 2023C. MTU’s transaction was purely a new money issuance that served to finance the construction of East Hall, a new student housing facility on the University’s east campus in Houghton, MI. Similarly, CSM’s transaction also consisted solely of new money issuance to finance renovations, demolition, and construction of residential apartment-style housing at CSM’s Mines Park facility on its campus in Golden, CO.
One similarity between these transactions is their ratings: both schools’ bonds carry an “A1” rating from Moody’s Investor’s Service, although MTU utilized bond insurance for its financing, giving its bonds a “AA” rating from S&P Global – two notches higher than CSM’s A+ underlying rating from S&P. Colorado School of Mines’ issuance was the larger of the two, coming in at $132.485 million in total par amount, whereas MTU’s transaction was roughly half that size, at $64.41 million of par amount. Both deals featured a standard 10-year par call option in 2033. The deals were very similar in terms of structure, with both utilizing serials out to the 20-year point in 2043 followed by two term bonds in 2048 and 2053. The only difference in maturity structure is that CSM’s first maturity is in 2025, while the first maturity for MTU’s transaction does not occur until 2026. MTU also capitalized interest for the construction period of its project (through 10/1/2025), unlike CSM, which did not borrow for capitalized interest. The two deals were also similar in coupon structure. MTU utilized exclusively 5% coupons on its serial maturities, while Colorado School of Mines used identical 5% coupons on serial maturities from 2025-2038, but in contrast to MTU featured 5.25% coupons on its last five serial maturities from 2039-2043. Both issuers opted for 5.25% coupons on their two term bonds in 2048 and 2053.
October was a volatile time in the municipal market, as can be seen from the several sharp adjustments, both higher and lower, to the MMD index over the course of the month. The week ahead of both deals’ pricing dates, the index moved favorably, declining by 17-21 bps across the yield curve. The index remained unchanged on the 16th, but increased sharply on MTU’s pricing date, rising by 6-10 bps along the curve. MTU was ultimately able to achieve spreads of 30-55 bps on its serial maturities and 60 and 63 bps on the 2048 and 2053 term bonds, respectively. MMD rose again, although by a smaller margin of 2-5 bps, during the ensuing day ahead of CSM’s pricing, and increased again by an additional 5-8 bps on its pricing date of the 19th. Colorado School of Mines was ultimately able to achieve spreads of 25-49 bps on its comparable serial maturities and spreads of 54 and 59 bps on its two term bonds. On average, CSM’s bonds priced just under 2 bps tighter than those of Michigan Tech on a spread basis. However, despite pricing just two days later, the yields of its bonds averaged approximately 8 bps higher than those of comparable maturities for MTU, even after utilizing higher 5.25% coupons on the later serial maturities (which would result in slightly lower yields to the call date for those maturities).
Meet the Author:
Mr. Elliott joined Blue Rose’s California office as an Associate in 2021. He was responsible for consulting engagements and providing analytical and research support to the lead advisory team for Blue Rose’s P3 advisory and the municipal debt advisory practice, along with assisting the Chief Compliance Officer. Now in his role as Chief Compliance Officer, Mr. Elliott is tasked with maintaining responsibility for client contracts and disclosures. He will continue to provide analytical and research support and project management for Blue Rose’s P3, strategic consulting, and debt advisory practice.