With uncertainty over federal tax reform looming – and pressure increasing on rates in major tax-exempt, fixed-income markets – the University of Colorado last week achieved a bond refunding that results in gross savings of $49.2 million for CU.
Dan Wilson, treasurer and associate vice president of budget and finance, said the Nov. 30 sale of $471.3 million in bonds was extremely well-received in the market. The largest CU issue to date, it resulted in a present value savings of $35.2 million and total debt service savings of $49.2 million over the life of the bonds. The true interest cost of the borrowing was 3.21 percent.
“In recent weeks, since the tax reform announcement, there has been tremendous upward pressure on rates in all major tax-exempt fixed income markets,” Wilson said. Since the Nov. 16 Board of Regents meeting, rates had risen 7-10 basis points (1 basis point equals 1/100 of a percent).
By responding quickly, Wilson said, “We have removed the potential negative impact of tax reform on a large portion of our debt and reduced our exposure to further interest rate increases on over one third of our existing debt.”
The CU bonds priced stronger than comparable offerings last week by the University of Texas system and the Texas A&M system. The pricing also was an improvement over CU’s May 2017 issue by 4-5 basis points, relative to CU’s spread to AAA credit. This was improved over prior years thanks largely to the positive impact of CU’s Moody’s credit rating improvement in April 2017.
“I give full credit for our success to our internal team at CU, led by Chuck Cook, associate treasurer and director of liabilities, the Treasurer's Office, support of the Controller’s Office, Finance and Budget, General Counsel’s Office and the campuses in helping us compile, in record time, the information needed for the Official Statement (200-page offering document) and rating reviews,” said Wilson, who also credited support from external professionals including Wells Fargo, Stifel, Citigroup, RBC Capital Markets, Hogan and Lovells, Kutak Rock, Ballard Spahr and North Slope Capital.
“The entire team worked together extremely well in accomplishing these significant savings for the university.”