Lakehead U joins ranks of academic debt financings

COMMENT

Another

Canadian university

is set to raise capital via a trip to the debt capital markets.

Lakehead University, based in Thunder Bay Ont., is planning to raise $ 100- million for a term of 40 years. When that happens, Lakehead will join a list of about a dozen other university issuers, most of whom are based in Quebec, Ontario and British Columbia.

This week, Moody’s Investors Service assigned an A1 rating to the planned financing that is still a few days from coming to the market. Moody’s assigned a stable outlook to the rating.

“ We are very pleased with the rating which demonstrates the management and financial stability of the university,” said Michael Lowski, Lakehead’s vicepresident of administration and finance.

Proceeds from the amortizing debt issue will be used to consolidate bank debts and thereby reduce its interest charges. Lakehead is paying about 6.25% for its $54-million of bank debt. It hopes to pay “in the low five per cents” for the debt it’s raising in the capital markets.

Moody’s said the rating reflects a so-called baseline credit assessment of three (the scale runs from one to six with one being the lowest credit risk); an Aa2 local currency rating of the Ontario government; medium default dependence (defined as the probability of a default in the event of a provincial default) and medium support (the likelihood the province would act to prevent a default by the university.)

Moody’s noted that big things are happening at Lakehead, the most notable of which is the provincial government’s decision to create the Northern Ontario School of Medicine, a joint venture with Laurentian University in Sudbury, Ont. The school opened in August. Lakehead is also expanding southward and by the fall of 2006 will have a new satellite campus at Orillia, a town one hour north of Toronto.

Moody’s said the baseline credit assessment reflects a capital program that has required a substantial increase in debt in recent years. While increased debt limits the university’s financial flexibility, Moody’s was impressed by Lakehead’s decision to apply about $30-million of the bond proceeds to its internally restricted endowment, a move that Moody’s says “provides substantial liquidity.” Lowski said the $30-million will be invested in a mix of debt and equities.

Lakehead said RBC Capital Markets will be the lead and sole manager on the financing. No real surprise there given that Royal Bank is Lakehead’s banker. Financing Rogers

Thanks to a careful reader for this footnote to an item that appeared in a recent column.

That column noted Rogers Media — the unit of Rogers Communications that owns the company’s publishing and broadcasting interests — had recently lined up $600-million in a new, five-year credit facility. That facility replaced an existing, $500million one year before maturity.

The column also noted that Royal Bank was the agent. What wasn’t mentioned was that Royal replaced CIBC as the agent.

Why the change? Rogers wasn’t saying much. “ We don’t comment on our bank facilities beyond what we disclose publicly,” said Bruce Mann, vice-president for investor relations at Rogers Communications.

So what is disclosed publicly?

According to its June 30 financials, Rogers Media had drawn down $344-million of floating rate debt under its former facility.

Also, units within Rogers seem to be amending their bank facilities. In the second quarter, Rogers Cable changed its bank facility whereby the amount outstanding was reduced; the maturity date was extended to allow the borrower to make so-called bullet payments; and the issuer was given a break on fees.

Others in the know had this to say about the change: “Rogers is very good about awarding business based on total exposure. Royal has more exposure to the group than CIBC, so [it] got the agent title this time around.”

Having an exposure to Rogers hasn’t always been positive for some units of the Royal Bank. A while back, RBC Capital Markets won the right to sell $250-million of stock in Rogers Communications. It took a period of time for the deal to wrap up — but not before RBC took a hit.

For RCI’s other units, TD Bank is the agent bank for loans made to its cable operations while Scotiabank is the agent bank for loans made to its wireless unit.