University of St. Francis (Joliet, IL)
About the University
The University of St. Francis (the "University" or "USF") is located in Joliet, Illinois and serves 3,400 students via undergraduate, degree-completion and graduate programs.
The Longhouse Challenge
The University had two outstanding letter of credit backed, variable rate demand bond issues with associated swaps that it was seeking to restructure or refinance.
Longhouse was engaged in March 2013 to advise the University as it constructed a plan of finance to restructure its debt, sought a new financing partner and completed the documentation and sale of its refinancing issue.
With Longhouse's assistance, the University conducted a competitive bidding process to identify a new financing partner for USF's existing $24.5 million in bonds, to fund a swap termination payment and to provide a line of credit. For the University's long-term debts, USF sought a $24.9 million tax-exempt direct placement financing maturing in 2037 and a $4.08 million taxable loan maturing in 2017 to pay for its existing swap termination. The taxable loan was to amortize first, followed by the tax-exempt direct placement. The University also accepted bids for a replacement Letter of Credit in support of its existing Variable Rate Demand Bond structure, but the direct purchase options were ultimately more attractive. USF wished to obtain, and received bids for, credit commitments ranging between 3 - 10 years.
The RFP was sent to 6 banks, all of which responded with a term sheet to provide the financing by the 4-week deadline that was required. Longhouse helped the University evaluate the six bids it received, not only based on the lowest rate that was offered but on other important factors, including:
Length of credit commitment
Additional debt allowance
Bank's ability to address the existing interest rate swap
Bank's willingness to accept a "negative pledge" security structure
General fit as a partner for USF
USF chose a bid from a medium-sized bank that offered a 10-year credit commitment on the tax-exempt portion of the financing (although the University chose to fix the rate for just 7 years of the commitment period) and a 5-year credit commitment on the smaller, taxable loan that was used to fund the swap termination payment. Additionally, the bank was flexible in allowing the University to defer principal payments on the tax-exempt debt until the taxable loan was paid off.
Longhouse also negotiated flexible security and financial covenants including:
A reduced Asset Maintenance covenant (i.e. Liquidity Ratio) threshold - from 0.30x to 0.20x - which increased USF's additional borrowing capacity for new projects.
A more liberal Debt Service Coverage covenant, equal to 1.00x, including a definition which did not subtract from USF's net revenues its annual unfinanced capital project expenditures.
A negative pledge on the campus as security with no appraisal requirement
Ultimately, the new financing was closed in June 2013 and completed at a rate of 2.16%, fixed for 7 years. The refinancing will save USF nearly $1.3 million in principal and interest payments annually and approximately $5.5 million in interest savings alone over the first 10 years.
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