By Brian Chappatta and Gillian White Bloomberg News
NEW YORK - Brown University will use a $127.4 million bond sale to renovate downtown property after agreeing in May to almost double annual payments to the city.
Brown’s plans include buildings at 70 Ship Street and 233 Richmond Street, in Providence’s Jewelry District, as well as its library, laboratories and residence halls, according to a sale document. The revenue bonds will be sold today by the Rhode Island Health and Educational Building Corp.
The debt is graded AA+ and Aa1 by Standard & Poor’s and Moody’s Investors Service, respectively -- both the second highest ratings.
That’s six levels higher than Brown’s hometown, which had was cut to a third-lowest investment-grade by Moody’s this year as the city coped with rising pension costs and weak revenue. The nonprofit school agreed last month to increase payments to Providence by $31.5 million over 11 years.
“Highly rated credits that are seemingly immune to the current economic and fiscal problems continue to be in vogue,” Chris Mier, chief municipal strategist at Loop Capital Markets in Chicago, said by telephone. He cited Harvard University, an Ivy League school in Cambridge, Massachusetts, as an example.
Brown’s agreement with the city calls for it to provide an extra $3.9 million in payments in lieu of taxes annually for five years, beginning this month. In June 2017, the sum drops to $2 million through June 2022.
The additional payments aren’t listed among investor risks in the offering document. The university’s financial performance “will depend to some degree upon factors beyond the control of its management, including general national and local economic conditions,” it says.
Providence reached a deal with union leaders and retirees on May 31, letting it cut pensions for police and firefighters. The accord helped the city stave off bankruptcy.
No one from Brown’s Finance and Administration Department was available to respond to questions about the sale, according to Mark Nickel, a spokesman for the school.
The bonds mature in September 2021 and September 2022, according to the sale document. The yield on top-rated 10-year education debt declined to 2.24 percent yesterday from this year’s high of 2.54 percent on March 20, a Bloomberg Fair Value index shows. On Feb. 6, the index fell to 2.15 percent, the lowest since at least 1998, when the data begin.
Brown’s academic prominence and name-recognition will probably minimize the effect of the city’s fiscal situation and debt ratings, said Robert Donovan, executive director of the state agency involved in the sale. The university was started in the city in 1764.
The school is tied for 15th on U.S. News & World Report’s list of best colleges. Brown’s acceptance rate has declined from 13.7 percent for the class graduating this year to 9.7 percent for the class of 2016, according to the offering document.
Tuition, room, board and other student charges will be about $55,000 in the 2012-2013 academic year.
Moody's Investors Service,