St. Louis College of Pharmacy

About the College

St. Louis College of Pharmacy ("STLCOP" or the "College") is one of the premier educators of pharmacists in the U.S., and currently has about 1,350 students.  It is one of only a few pharmacy schools nationally that enrolls undergraduate students, offering a 7-year, integrated Bachelor of Health Sciences and Doctorate in Pharmacy degree. 

The Longhouse Challenge

In September of 2013, Longhouse Capital Advisors was engaged to serve as Financial Advisor to the College.  The College was planning to issue up to $80 million in fixed rate, new money bonds to fund an academic building, a dining hall, a student center and a residence hall.  In addition, it was considering combining the new money issue with a fixed rate refinancing of up to $34 million in currently callable bonds from 2006.  However, rising rates and dwindling indicative savings had made the College question whether the refinancing would be worthwhile.  This was owing in part to a rising rate environment but also to a downgrade from STLCOP's prior A- (S&P) rating to ratings of BBB+ (Fitch) / BBB+ - Neg. (S&P). 

The College asked Longhouse to help it assess whether it should issue its new money financings as one issue or two, and to consider the impact of an early-stage capital campaign on this decision.  It also asked Longhouse to represent it in discussions with the Underwriter about the efficacy of including a mortgage and a debt service reserve fund in the new bonds' security structure.  Finally, Longhouse was asked what the minimum level of present value savings should be if the College were to move forward with the refinancing of its 2006 bonds.

The Result

After consultation with the College and review of its expected project timetable, Longhouse recommended splitting the new money financing into two parts: $50 million in Phase 1 projects with bonds sold in November 2013, and the remaining Phase 2 funding to be done 12-18 months later.

This division would give the College time both to assess the success of its capital campaign and to refine the actual costs for Phase 2.  By doing so, STLCOP hoped to reduce the ultimate level of borrowing, or at least ensure it was adequate for the needs of the second phase of the project.

Longhouse also recommended a higher overall savings threshold for refinancing the prior bonds - a stipulation that resulted in the College refinancing only the shorter maturities of its existing bonds - about $22.4 million in all.  The remaining $11.8 million of 2006 bonds will be refinanced when the longer-maturity unrefunded bonds can meet the higher present value savings threshold, either when the second-phase new money bonds are issued, or on a standalone basis, if necessary.

As to the security for the issue, Longhouse supported offering a mortgage to bondholders, as it was clear that this would result in a lower overall rate.  However, Longhouse provided research showing that most mid-to-high-level BBB-category higher education financings could be sold without a Debt Service Reserve Fund and without negative rate consequences.  The reserve fund, which would have raised borrowing costs considerably, was ultimately left out of the financing.

The $77.7 million new money and refunding issue was priced on November 13, 2013 with Wells Fargo as sole underwriter.  The preliminary pricing was more than 4 times oversubscribed, with orders received from over 40 market participants.  Because of this strong interest, rates on the term bonds were lowered and the College achieved a True Interest Cost of 5.25%.   The refunding portion of the financing achieved present value savings of over $837,000, representing 3.74% of the par amount of the bonds refunded.

Return to Case Studies


   
     Longhouse Capital Advisors, LLC | 628 N. Kensington Ave. | LaGrange Park, Illinois  60526 | (312) 869-4070 | admin@longhousecapital.com