University Issues $631 Million in New Bonds to Finance Infrastructure, Existing Debt

February 6, 2019

The university issued approximately $631 million in taxable revenue bonds across two series that will mature at different times. Moody’s Corporation, a credit agency, gave the bonds an A2 rating, calling the long term financial outlook of the university “stable.” S&P Global Ratings, another credit agency, gave the bonds an A- rating, a downgrade from the university’s former A rating. The series A bonds, worth $303 million, will mature in October 2118.

The proceeds will largely finance maintenance needs and future construction and renovation throughout the university. “While we celebrate Georgetown’s 230-year heritage, we recognize that our historic buildings and infrastructure require constant upkeep and renovations,” David Green, the university’s chief financial officer, wrote in an email to the Voice.

The positive rating from analysts comes with expectations for higher operating margins, greater philanthropic giving to the university, and an increase in tuition revenue. Green cited growth in undergraduate and graduate enrollment as the driving force behind the increased tuition revenue. However, undergraduate tuition hikes have also been a source of revenue growth for the university.

S&P Global Ratings previously gave Georgetown’s existing debt an A rating, calling its financial profile “adequate, with weak operating performance and available resources.” Overall, the report pointed toward the university’s growing demand among students nationwide, with steadily increasing applicant pools, as a main reason to be optimistic about its long term finances.

However, S&P showed concern for the university’s large operating deficits. Georgetown reported a $39 million deficit in fiscal year 2017, though the deficit narrowed to $19 million in fiscal year 2018 and is projected to shrink further in 2019.

“We are committed to maximizing our financial resources and achieving operating surpluses,” Green wrote. Georgetown’s operating performance in the first five months of fiscal year 2019 has improved by $22 million compared to those of last year, according to Green.

Another potential financial hurdle is the university’s $943 million of outstanding debts. Approximately $309 million of the new bonds will go toward refinancing the existing debt burden to terms that Green called “more favorable” for the university.

The length of time until maturity of a portion of these bonds—nearly 100 years—is an unconventional strategy. Though a handful of universities—such as MIT and Yale, as well as companies like Disney and Motorola—have issued “century bonds” in the past, it remains a rare move. Investors’ willingness to buy such long term debt shows faith in Georgetown’s future prospects.

“By issuing century bonds, we can lock in rates, hedge against inflation and tap into a flexible and stable source of capital over a long period of time as we maintain our physical infrastructure and invest in the future of our university,” Green wrote.

Peter Guthrie
Peter is a sophomore in the SFS from Kentucky who looks like he still listens to Vampire Weekend.

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