The Shield – Final LIBOR Transition Update

Two of our higher education clients brought transactions to market on back-to-back days this month, making for an exciting week at Blue Rose. The results for these pricings are shown in the table below. On August 15, Carleton College (“Carleton”) priced its tax-exempt Series 2023 Revenue Bonds. The following day, Wayne State University (“WSU”) priced its tax-exempt Series 2023A General Revenue Refunding Bonds. Carleton’s transaction was purely a new money issuance, with the proceeds financing new student townhomes along with a multipurpose student health and counseling center on the college’s campus. In contrast, WSU’s transaction was a standalone refunding of the majority of its Series 2013A Bonds. Given the current elevated interest rate environment, existing maturities of the 2013A bonds with lower coupons in 2027, 2028, and 2040 were partially or fully excluded from the refunding.

Both schools’ bonds carried ratings in the “Aa” category from Moody’s, with Carleton’s bonds rated Aa2 while Wayne State’s were rated Aa3. WSU’s issuance also featured a AA insured rating from S&P from Build America Mutual, with bond insurance used to enhance the University’s underlying A+ rating. Carleton’s pricing also benefited from the Minnesota state tax-exempt status of the bonds, which proves valuable to Minnesota borrowers given the higher state taxes in Minnesota relative to many other states. Its issuance was the larger of the two deals, totaling roughly $60.5 million in total par amount while Wayne State’s issuance was approximately $42.5 million in size. Both deals were sold with a standard 10-year par call option in 2033. Carleton’s bonds were issued with an 8-year interest-only period to reduce the new issue’s impact on MADS. The College utilized serialized maturities from 2031 through the 20-year point in 2043, before also featuring three term bonds in 2045, 2048, and 2053. WSU’s bonds were fully serialized with maturities ranging from 2024-2026 and 2029-2040, and were structured to accelerate interest rate savings into the first three fiscal years (FY 2024-2026) without generating dissavings in later years. The two deals were similar in coupon structure as well, both using exclusively 5% coupons with the exception of WSU’s final two maturities in 2039 and 2040, which were sold with 4% coupons.

 

In the two weeks leading up to Carleton’s pricing on the 15th, MMD rose between 7-18 bps across the curve, with double-digit increases at every tenor beyond the 3-year point. On pricing day, most of the curve increased by an additional 2-5 bps (with the exception of the first five maturities, which were primarily unchanged except for a 2 bp decrease for the 1-year tenor). Carleton was ultimately able to achieve spreads of 15-34 bps on its serial maturities and 34-35 bps on the three term bonds.