In its first bond issuance, City Colleges of Chicago, one of the nation’s largest community college systems, has successfully sold $250 million in tax-exempt bonds to finance a portion of its $555 million five-year capital program. Last week, two major international credit rating agencies, Standard & Poor’s and Fitch, rated the bonds as AA stable and AA- stable, respectively. The strength of investor interest in the bond sale and market timing allowed City Colleges to reduce its borrowing cost from preliminary pricing levels by nearly $2.6 million, saving taxpayer money.
“City Colleges of Chicago’s proven track record of balanced budgets and sound financial practices generated an overwhelming interest in the bond offering, creating the best possible deal for taxpayers in a project that will pay dividends by training our future workforce and keeping our City economically competitive,” said Chancellor Cheryl L. Hyman. “With funds from this sale, City Colleges will invest in facilities to accommodate relevant and challenging programs and prepare students for success in both further college and careers.”
Over a 24-hour period, more than 45 investors placed orders totaling nearly $1 billion for the $250 million in bonds offered. City Colleges also secured an interest rate of approximately 5% per year, a half percent lower than expected, generating significant taxpayer savings. The bonds will mature over 30 years.
City Colleges will use the proceeds from the bond sale to finance capital projects across its seven colleges, including a new campus for Malcolm X College and a new Transportation, Distribution and Logistics (TDL) Training Center at Olive-Harvey College as well as upgraded classroom technologies and new teaching and learning facilities across the system. The new $251 million Malcolm X College and $45 million Olive Harvey TDL Training Center will support City Colleges’ College to Careers program that partners City Colleges faculty and staff with industry experts to modernize curriculum and facilities and prepare students to hit the ground running in the region’s fastest-growing fields. The new Malcolm X College is expected to serve about 20,000 students and will feature a virtual hospital, skill and simulation labs and general and adult education classrooms when complete at the end of 2015.
Jefferies served as a senior underwriting manager on the bonds, with Loop Capital and Ramirez & Co. serving as co-senior managers. Other members of the underwriting team included BMO Capital, Cabrera Capital, Goldman Sachs, Lebenthal, Siebert Brandford Shank and Williams Capital. Columbia Capital Management, Peralta Garcia Solutions and Vlecides-Schroeder Associates served as co-financial advisors to City Colleges. The bonds are rated ‘AA (stable outlook)’ from Standard and Poor’s and ‘AA- (stable outlook)’ from Fitch Ratings.
The sale builds off City Colleges successful financial and academic track record under Chancellor Hyman’s leadership. City Colleges’ fund balance exceeds 20%, including $70M in available working cash. The FY13 operating surplus is expected to be 10% of operating revenues, and current reserves for capital total $170 million.
City Colleges consistently generates significant operating surpluses which are then directed to capital to support academic programs after an operating reserve is maintained in general accounts.
City Colleges has achieved a balanced budget in the last three years with no increase in property taxes. The College has also made strong academic gains – with the highest number of degrees awarded in City Colleges’ history.