Bond market rates increase, foil YSU plan

By Harold Gwin

Interest rates are higher now than when the borrowing plan was drafted.

YOUNGSTOWN — A scenario that would have Youngstown State University borrowing $50 million for capital improvements, at the same cost a $40 million bond issue would have been a year ago, apparently won’t work.

It turns out that interest rates in the bond market haven’t dropped as YSU’s trustees had hoped.

The rates on long-term, tax-exempt bonds are higher now than when the university trustees approved a plan more than a year ago to borrow the $40 million, said Lee Mairose of RBC Capital Markets, an investment adviser on the bond issue.

He told the board’s Finance and Facilities Committee on Thursday that the university is looking at a long-term interest rate of about 6 percent. That’s down about 0.5 percent from several weeks ago, he noted.

That rate is the same for a $40 million or a $50 million bond issue, he said.

The suggestion to look at borrowing additional money to expand the improvement project list came out of a Finance and Facilities Committee meeting last month.

The declines in the stock market and interest rates in general prompted the committee to consider a larger debt.

The $40 million is the local share of $82 million worth of projects that would also draw financing from state capital funds, philanthropic gifts, internal funds and federal grants.

At the top of that list is the new Williamson College of Business Administration at $34.3 million, with $20 million of that amount to come from the bond issue.

Scott Schulick, chairman of the board of trustees, said the report from Mairose doesn’t mean the university can’t still borrow more than $40 million.

The committee is awaiting a detailed project list from the administration and expects to see that at a meeting in early December, Schulick said. At that point, the trustees will decide how to proceed, he said.

“The situation is fluid,” he said, adding that the interest rates could still change before the bond issue is put on the market.

Mairose said he anticipates a $40 million to $42 million bond issue to be borrowed during the first quarter of 2009, adding that the university should remain flexible and ready to take advantage of the best market conditions.

The university already has a plan in place to cover the annual debt service on a $40 million bond issue, proposing to tap annual savings of $2.5 million secured through an early-retirement incentive plan for employees. That’s the estimated annual debt payment on a $40 million bond issue.

gwin@vindy.com