$300 Million in Bonds Issued to Build University Center

On November 17, The New School issued $300 million Series 2010 tax-exempt bonds to investors to finance the construction of the university center at 65 Fifth Ave. and three floors of academic space in 79 Fifth Ave.

Although The New School has used bonds to finance projects since the 1980s, this project costs more due to its sheer size. “This is only the second time the university has built an academic building itself to suit its needs,” said Frank Barletta, senior vice president of finance and business. The other building was 66 W. 12 St., which was built in 1930.

On October 29, credit rating agencies Moody’s Investors Service and Standard and Poor’s Rating Services gave The New School’s debt a high “A” rating.

Both agencies also gave the $300 million bonds a “low risk” rating, which allows the university to have lower interest rates. Moody’s downgraded the bonds from an “A2” rating to “A3” due to the large amount of debt the university has and Standard and Poor’s gave the bonds an “A-”. The highest attainable rating is “AAA.”

“I really feel that the university is in a sound and strong enough financial position that Moody’s should not have downgraded us,” Barletta said. “We’re very pleased with S&P’s rating.”

“We wouldn’t be able to issue bonds if our credit rating wasn’t good,” Barletta added.

The 16-story university center, which will contain a dorm, auditorium and library, and the three floors in 79 Fifth Ave., will cost $372 million to build, according Barletta. With interest, the cost will be over $400 million. The New School has only raised $82 million for the project from gifts.

“It’s very common for universities to use tax-exempt bonds,” Barletta said

In the past, The New School used bonds to purchase the 20th Street and 13th Street dorms, renovate Arnhold Hall, 79 Fifth Ave., the Shelia C. Johnson Design Center, and build the Welcome Center.

“We’ve been working on this particular project now for about two and a half years,” Barletta said. “The entire planning cycle is about five years ago.” The Board of Trustees unanimously approved the financing plans after the project was passed. It was then approved by the New York State Dormitory Authority, through whom the university issued the bonds. The university then met with potential investors — institutions such as Fidelity and Black Rock — who invested the bonds in mutual funds and sold those to individuals. Once the building opens, payments begin.

Tax-exempt bonds allow the issuer to pay the money back over a longer period with interest rates lower than taxable rates. These bonds will take up to 40 years to pay back.

“There’s really no dangers in using bonds,” Barletta said. They will not affect the university financially, he said, because the university created a financial plan. The bonds will be paid back using general revenue and funds from the William Street dorm lease, which expires in 2013.

“You really have to look at what the new building is going to do for the university,” Barletta said. “It’s a transformation.”

Barletta doesn’t foresee any problems concerning repaying the bonds. “We knew there were no issues before we started taking [65 Fifth Ave.] down,” Barletta said. “We knew it was going to take place, just that it takes time.”

The construction on 79 Fifth Ave. will commence about a year after the university leases the floors in January 2011 and January 2013, said Barletta. The construction on 65 Fifth Ave. will begin after the building is fully demolished at the end of November, and is slated to open in September 2013.