U. issues $200 mil. in bonds

In an administrative era marked by pricey deferred-maintenance projects and massive retail ventures, every little bit helps. The University received $200 million in spare change for such projects when investment giant Merrill Lynch made the highest bid and purchased the University's latest bond issue at a sale Wednesday, officials said. The new funds will help subsidize building renovations and campus construction over the next few years, according to Vice President for Finance Kathy Engebretson. Administrators secured authorization from University Trustees in November to issue the bonds in an attempt to fund new projects and refinance Penn's debt repayment. The University's outstanding debt stood at $994 million as of last June 30. Potential projects to be funded with revenues from the bond sale include renovations to Bennett Hall, Franklin Field and the New Bolton Center -- the Veterinary School's large-animal campus in Kennett Square, Pa. -- as well as construction of new biological and veterinary research facilities. Officials have refused to earmark funds for specific projects, instead composing an exhaustive list of 30 existing and future projects that may benefit from the additional revenue. "If you don't list the project, you can't spend money on it," Engebretson explained. Officials have opted to invest the revenues from the bonds, expecting to get a large enough return on the investment to be able to repay the bonds while keeping the total amount available for use on the projects. The University, under the auspices of the Pennsylvania Higher Educational Facilities Authority, entertained bids from four groups of investment firms, including industry giants Lehman Brothers, Bear Stearns and Salomon Smith Barney. Penn required that at least one minority firm be represented per syndicate. Merrill Lynch emerged victorious, offering an average interest rate of about 4.94 percent on the 40-year bonds. Merrill Lynch officials were unavailable for comment yesterday due to the observance of Martin Luther King Jr. Day. "We purposely timed [the sale] early [in the year] because there are not a lot of bonds being offered in January," Engebretson explained. "It's an issue of supply and demand." She added that the bonds achieved a "high grade rating" of Aa2 from Moody's and an AA rating from Standard and Poor's -- two prominent investment services that rate corporate and municipal bonds by estimating the issuer's ability to repay the principal and interest in a timely manner. Moody's scale ranges from Aaa, or best quality, to C, or lowest quality. In explaining the favorable rating, Moody cited the "University's fast-growing endowment and strong market demand," Engebretson said. The University's last foray into the bond market occurred in 1996, when the University's Health Services Division sold $450 million in bonds, under the Pennsylvania HEFA, to the Smith Barney syndicate. In explaining Penn's ties to the Pennsylvania HEFA, University Treasurer Scott Lederman noted that state authorities often issue tax-exempt bonds on behalf of an organization. "The alternative is to issue taxable bonds at a 6 to 6 1/2 percent interest rate," he said. Engebretson described the 4.9 percent interest rate offered by Merrill Lynch as "amazing." "In the past, [Penn] issued bonds with a 30 year maturity, but we wanted to take advantage of this great rate," she said.