Bloomberg News

Stanford Joins University of Chicago Selling Into Tax-Free Rally

April 26, 2013

Stanford University and the University of Chicago, among the 10 highest-ranked U.S. schools, plan to offer tax-exempt revenue bonds amid the biggest rally this year in the $3.7 trillion municipal-debt market.

The California Educational Facilities Authority will issue about $240 million of new tax-free debt on behalf of Stanford, according to offering documents released today. The Bay Area university, near the headquarters of Facebook Inc. (FB:US) and Google Inc. (GOOG:US), will also issue $150 million of taxable securities itself.

In a similar deal, the University of Chicago plans to offer $200 million of taxable bonds and borrow another $150 million via the tax-exempt market through the Illinois Finance Authority, according to preliminary official statements.

Munis have gained about 0.9 percent this month, the most since November, according to Bank of America Merrill Lynch data. Education bonds sold through the municipal market have earned even more, returning about 1 percent in April, the data show.

Moody’s Investors Service, Standard & Poor’s and Fitch Ratings are all expected to give Stanford their top grades, according to the offering documents.

The school is among a dwindling breed. Amherst College in Massachusetts, one of the wealthiest U.S. liberal-arts institutions, and Williams College, another elite private school in the state, both lost their AAA ratings from S&P over the past year.

Endowment Gains

The value of Stanford’s endowment increased 3.2 percent to $17 billion in the fiscal year ended Aug. 31, according to the school. The proceeds from the sale will pay for capital projects or refinance debt used for previous initiatives.

A Stanford bond sold by the California agency in April 2010 and maturing in April 2040 traded this week at an average yield of 3.08 percent, according to data compiled by Bloomberg. That’s about 0.15 percentage point more than benchmark AAA munis due in 27 years, the data show.

The University of Chicago has the second-best rating from Moody’s and Fitch, and the third-highest from S&P. In the latest U.S. News & World Report National University rankings, the Chicago school, founded in 1890 by John D. Rockefeller, is tied for fourth with Columbia University in New York. Stanford is tied for sixth with the Massachusetts Institute of Technology.

To contact the reporter on this story: Brian Chappatta in New York at bchappatta1@bloomberg.net

To contact the editor responsible for this story: Stephen Merelman at smerelman@bloomberg.net


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