CHICAGO -- Call them the Issuing Irish.
The University of Notre Dame, as well known in financial circles for aversion to debt as it is among fans for gridiron prowess, is setting records this season.
Not for yards rushed or turnovers forced, but for debt issued. The university is scheduled to go to market tomorrow with its biggest bond issue to date -- $52 million in 501(c)(3) bonds to renovate Notre Dame Stadium.
Notre Dame has sold only two other tax-exempt revenue bond issues in its 152-year history: one in 1990 for about $10 million and one in 1992 for about $9 million.
"Our debt policy is such that we will only issue debt for projects that have some kind of revenue stream," explained Scott Malpass, chief financial officer at Notre Dame.
The funds from the negotiated issue will be used primarily to renovate the stadium and add 20,000 seats. University officials said they can repay the entire $52 million with the added revenue from the new seats. In fact, Malpass predicted there will be excess revenue and stressed that it will be go to "academic and student life needs," not to the athletic department.
Ironically, it's the athletic department that could use the boost. Notre Dame was dumped unceremoniously from its perpetual berth in the Associated Press Top 25 this year after losses to Brigham Young, Boston College, and Michigan, and freshman quarterback Ron Powlus has been sacked 16 times this season without the protection of an experienced offensive line.
But the university has the right statistics where it counts-- at Moody's Investors Service. Notre Dame is one of only 14 private universities in the country that carries an Aaa rating from Moody's.
"Management observes a conservative debt policy," according to Moody's credit report on the school. "Gifts have funded the majority of the university's capital needs, eliminating the need to finance projects with debt."
Moody's analysis raises a question. Why are school officials turning to bonds to expand the stadium, a project near and dear to the hearts and pocketbooks of generous Notre Dame alumni?
"It would be easy to raise the money for the project," said Robert Wilmouth, chairman of the Notre Dame board of trustee's investment committee. "But we wanted this to be totally separate and distinct so it wouldn't detract from fund-raising for other purposes, like the endowment fund for minority scholarships. It's a business venture, and the cash flow is more than adequate to cover the debt."
School officials have considered issuing an additional $10 million of bonds tomorrow to advance refund $9.7 million of bonds still outstanding on the 1990 issue, but are wavering because of current high interest rates. Richard Bellis, a vice president at First Chicago Capital Markets Inc., the book runner for the deal, said they will decide tomorrow whether to increase the issue to $62 million.
Co-senior manager on the issue is Goldman, Sachs & Co. Although one of whose limited partners, Robert Conway, sits on the Notre Dame board, Malpass and Wilmouth defended their selection of Goldman Sachs against charges of facoritism. They said Conway did not participate in the review process because he is not on the investment committee that makes decisions about bond issues.
"He had no involvement in the selection," said Malpass. "We chose them strictly on the merits, because of their experience in higher education issues."
He said school officials intervewed 30 firms before tapping Goldman as co-senior manager and J.P. Morgan Securities Inc., Merrill Lynch & Co., and Morgan Stanley & Co. as co-managers. The bonds will be issued on behalf of the university by the Indiana Educational Facilities Authority.
Wilmouth predicted that the university will issue more debt in the future. Malpass said Notre Dame officials are considering two bond issues in the next three years that would probably total less than 435 million. He added that though the school has only issued fixed-rate bonds so far, officials are interested in variable-rate bonds as well.
But he insisted the school is not embracing debt. "We continue to have a conservative policy. Our philosophy is not going to change overnight."
