Cornell University to bring $1.1 billion, nearly half in taxable

Cornell University plans to bring two deals totaling $1.11 billion, almost half of it taxable corporate CUSIP securities, this week and next.

The university is expected to bring the $500 million Series 2024B taxable bonds to market Thursday. It will mature on June 15, 2034, with an option to redeem with a make whole call/par call three months prior. Goldman Sachs & Co. is the lead underwriter and BofA Securities as the co-manager.
“I expect very strong demand for the taxable bonds,” said Pat Luby, CreditSights senior municipal strategist. “The acceleration of the redemption of older Build America Bonds is creating demand for reinvestment of the BABs call proceeds among investment grade credit buyers, who seek the addition of non-corporate credit risk to their portfolios to diversify their risks.”

Cornell University’s superior student market strength and other factors supports its Aa1 rating, Moody’s Ratings says.

Cornell University

The taxable bonds will have a corporate CUSIP. Nonprofit higher education institutions have been issuing more taxable bonds, including the use of corporate CUSIPs, in recent years.

The university will also price via the Dormitory Authority of the State of New York a $610 million tax-exempt Series 2024A deal on April 10. BofA Securities is the lead underwriter and Drexel Hamilton, JPMorgan, Loop Capital Markets, PNC Capital Markets, Ramirez & Co., TD Securities, US Bancorp, and Wells Fargo Securities are co-managers.

“Cornell has not been in the market with tax-exempts for several years, so I do expect good in-state demand for the bonds, but there will also be national demand from investors who do not already have the school’s bonds in their portfolios,” Luby said.

The tax-exempts mature in July 2054, with an optional par call in July 2034.

Both deals are rated Aa1 by Moody’s Ratings and AA by S&P Global Ratings.

The Yuba Group is municipal advisor to both deals. Ropes & Gray is counsel to the taxable deal and Orrick and Holley & Pearson-Farrer are counsel to the tax-exempt bond.

Moody’s pointed to the university’s “superior market strength as a highly selective university;” the university’s $11.5 billion of long-term investments and daily liquidity; its sizeable, “renowned,” and growing research activities; and diverse revenues sources, as reasons for its Aa1 rating.

“Tempering these strengths are rising payroll and other expenses facing Cornell and its patient care operations through its faculty practice plan, the latter which accounts for about-one quarter of university revenues,” the agency said.

Operating revenue increased 25% in nominal terms and 5% after inflation from fiscal 2019 to fiscal 2023, according to Cornell.

For its AA rating, S&P cited similar factors to Moody’s, adding that the school has a “modest debt burden.”

Cornell is one of the Ivy League schools and has more than 16,000 undergraduates and about 11,600 graduate and professional students. Admission acceptance rates for undergraduates went from 10.9% in 2019 to 7.9% in 2023 and for graduate students from 24.9% to 22.5% in the same years.

Cornell set out to raise $5 billion in contributions from fiscal 2019 through fiscal 2026 and by March 11 this year had already raised $4.62 billion.

The university plans to use most of the tax-exempt bond to refinance its Series 2000A, 2004A&B, 2019B&C, 2020B, C & D bonds and taxable commercial paper. It says it plans to use the taxable bond for “general corporate purposes.”

After issuance of the Series 2024A and B bonds, Cornell expects net university debt to rise by about $500 million. Total debt at the end of fiscal 2023 stood at $2.5 billion, according to Moody’s.

At the same date, days cash on hand was 205; the ratio of total debt to earnings before interest, depreciation, and amortization was 4; and annual debt service coverage was 5.9; according to Moody’s.

Cornell’s main campus is in Ithaca, N.Y. The Weill Cornell Medicine hospitals, medical school, and graduate biomedical program and the Cornell Tech technology-related graduate school are in New York City. Weill Cornell also has a campus in Qatar.

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