With one bond deal on hold, the New York Institute of Technology has defaulted on $35 million of revenue bonds issued by a local development agency to finance renovation on the college's Central Islip campus in Long Island, N.Y.
The college's finances are sound and unaffected by the incident, said Matthew Schure, president of the college, on Friday.
The default followed the college's move in February to issue approximately $85 million of taxable bonds and $35 million of tax-exempt bonds through underwriter CS First Boston. David Cyganowski, a director at CS First Boston, said the firm is waiting for market conditions to calm before selling the issue.
National Australia Bank, which issued a letter of credit on the Islip issue, has called the bonds at par plus accrued interest. As part of the default agreement, the bank becomes a direct creditor of the private college.
The bonds were issued in November 1986 by the Town of Islip Community Development Agency via lead underwriter Citibank in a negotiated offering. The transaction financed the renovation of buildings that now house the college's culinary school, residence halls, and a student center.
Standard & Poor's Corp. rated the issue AA; Moody's Investors Service rated it Aal.
The New York Institute of Technology began suffering financially in the late 1980s, according to Paul Fink, executive director of the Islip development agency. Declining property values reduced the net worth of the school, he said, and at least one planned land sale to raise cash never got zoning approval.
"It's a very sensitive issue," Fink said. "We don't like to see an event of default, but if it had to happen, this is the best way. All bondholders are being paid."
The Islip agency did not view the college's finances as flawed in 1986, Fink said. "I don't believe that at the time we thought there was a problem. Otherwise, why would we do business with them?" he said.
Last year, the college began negotiations with National Australia Bank to develop a workout agreement that would spread interest payments out over a longer period, said Sheryl Moody, general counsel for the New York Institute of Technology.
Moody could not say if the school had missed an interest payment, but she confirmed that the school had problems making its normal payments. "We missed something," she said. "We were in the process of negotiating a payout with the bank. [The bank] seemed receptive" to that idea.
National Australia Bank called the bonds to lower its own funding costs, said college president Schure. While technically the school defaulted, the action had no impact on the college's finances, nor its relationship with the bank, Schure said.
"I want to make that clear," he said. "National Australia Bank called the bonds for their own reasons."
Neither National Australia Bank officials nor officials at Marine Midland Bank, trustee for the Islip issue, would comment.
The point of the issue on hold is to consolidate the college's debt and enact a long-term capital plan, Schure said. The college's finances have improved greatly since 1991, he said. The college has ended the last three years with an operating surplus, and graduate, medical, and new student admissions are up, he said.
"This year we are projecting to have about a $3.5 million operating surplus," Schure said.
Cyganowski of CS First Boston agreed that the college's financial position is good.
"New York Tech is doing everything right," Cyganowski said. "They are cutting costs and increasing admissions. They have really turned around from a hiccup in the 1980s."
Cyganowski said he expects the college's approximately $120 million issue to be sold when supply decreases in the high-yield market. The issue has received preliminary ratings of B-plus from Fitch Investors Service and B from Moody's, he said."