Grand View University (Des Moines, Iowa)

About the University

Grand View University (“Grand View”, “GVU” or “the University”) is a 2,300-student Lutheran institution located in Des Moines, Iowa.  Over the past decade GVU has transformed itself, growing its headcount by 30% and using debt and fundraising to invest over $60 million in improvements to its academic and residence hall infrastructure.   For Grand View, the last piece of the puzzle has long been the renovation and expansion of its ‘70s-vintage Knudsen Student Center, a $13.4 million project that has been on the drawing board for over 10 years.  To fund the project, the University had identified annuity revenues from the renovation that would support $5.4 million of long-term debt.   However, that left $8.0 million to be funded from a capital campaign.  While the University had pledges for $5.6 million of this, only about $1.75 million of the pledges were in hand.

The Longhouse Challenge

Longhouse had assisted the University with residence hall financings in 2010 and 2012, and was once again asked to assist GVU with the implementation of a two-tranche Series 2014 funding strategy.  The first tranche of the debt would be comprised of a $5.4 mm direct bank placement bond with a 22-year final maturity.  The second would be a much shorter, 6.5 year, tax-exempt floating rate tranche, designed to be paid down from capital campaign receipts.  The pledge-based tranche would also be structured as a line of credit-like “drawdown” bond, so as to minimize interest expense during the construction period. 

Challenges of the financing included:

  • A capital campaign that was not completed, and had less than 25% of its goal received in cash,

  • The University's non-rated status and its high degree of leverage (approximately $63 million of pro forma debt vs. about $30 million of cash and investments),

  • A fall-off in enrollment in the Fall prior to the expected completion of the financing, and

  • The University's preference to complete the financing without an appraisal and using the same relatively liberal financial covenants that it had achieved in its fixed rate financing.

The Result

Longhouse solicited 6 banks to provide indications of interest or term sheets for the financing.  The winning direct placement provider provided a 10-year credit commitment, with a non-bank qualified, tax-exempt structure that met the University’s two-tranche plan of finance, including the drawdown feature for the pledge-based tranche.  The weighted average rate of the two tranches was 2.89% at closing. 

The bank also agreed to Longhouse’s request that the $5.4 million long-term series be structured to wrap around GVU’s other long-term debt so as to provide level overall debt service.  This required the bank to defer the beginning of principal payments on the long-term series to 2020, and to structure $4.0 million of the $5.4 million in debt repayment in the final two years of the 22 year amortization.  The Bank agreed to take the University’s mortgage pledge on an “abundance of caution” basis and without an appraisal.  Finally, the bank also agreed to mirror GVU’s existing fixed rate financial covenants so that Grand View could live with only one set of requirements. 

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