To accommodate financial needs for several ongoing projects, over the next few months the University plans to issue up to $400 million in new debt, primarily in the form of revenue bonds. The projects include construction for the Eckhardt Research Center for Molecular Engineering and the Becker Friedman Institute, as well as a renovation and expansion of the Laboratory Schools, which will increase its enrollment capacity from 1,750 to 2,050 students.
The University of Chicago has steadily increased its debt load in the past decade, following the trend of many major universities. According to Moody’s Investors Service, a major credit rating provider, UChicago ranks fifth among colleges and universities with the largest debt increase from 2002 to 2011. In 2011, the University had $3 billion in debt outstanding, up from $900 million in 2002. These figures include the $700 million for the Center for Care and Discovery, which opened earlier this year.
Despite the debt increase, the University is considered financially healthy, according to the nation’s top rating agencies. Moody’s and Standard & Poor’s have rated past debt issued by the University at the highest grade possible. The new debt has yet to be rated.
The amount of debt sold and the pricing of the new bonds will be determined at the time of the sale, according to a financing summary compiled by the Illinois Finance Authority, a self-funded state agency that assists businesses and non-profit corporations secure financing. Top financial firms Wells Fargo and Morgan Stanley are serving as senior managers on different portions of the debt issuance.
According to the University’s official policy on debt management, two critical factors govern the University’s debt levels: its ability to pay interest on the debt without crowding out funding for other activities, and its capacity to maintain top credit ratings for each of the bonds it issues.
Executive Vice President for Administration and Chief Financial Officer Nim Chinniah addressed the issue of the University’s growing debt at a Leadership Conference presentation to students on April 3. He explained that part of the past decade’s debt increase is attributable to the University’s strategic decision to “go full steam ahead” during the financial crisis of 2007–2008 instead of pulling back on financial commitments. Chinniah is responsible for overseeing the University’s debt portfolio and presents an annual report to the Financial Planning Committee of the Board of Trustees.
The University last issued bonds on a similar scale in 2012 in order to finance early costs on many of its current projects as well as some completed projects, like the Reva and David Logan Arts Center, Joe and Rika Mansueto Library, and the Stevanovich Center for Financial Mathematics.