ASU takes advantage of bond market's low interest rates
Appalachian State University recently refinanced nearly $26.5 million in bonds, which will save more than $2 million in interest during the next 15 years. While the university typically refinances its bond debt when interest rates drop, this is the first time more than a dozen financial institutions bid on the refinancing to buy the university's bonds.
“This speaks to the financial strength of Appalachian,” said Greg Lovins, interim vice chancellor for business affairs speaking during the June 8 meeting of Appalachian's board of trustees. “Investors are attracted to Appalachian's bonds because of the strong demand to attend the university, indicative of our academic excellence and the emphasis placed on the total student higher education experience.”
Also known as “refunding,” the university refinanced bonds that were issued in 2002, 2003 and 2005 for University Housing and Department of Athletics' projects. The bonds were sold competitively, with the Robert W. Baird & Co. Inc. of Milwaukee, Wis., winning the bid at an interest rate of 2.76 percent.
A competitive sale means interested banking firms bid on the bonds instead of the university selecting a specific firm which would negotiate the sale of the bonds in the marketplace. Market conditions, including the demand for Appalachian's bonds, indicated that a competitive sale would result in lower interest rates than would a negotiated sale, according to Greg Lovins, interim vice chancellor for business affairs.
Refunding the bonds at lower interest rates will provide net present value savings of approximately $2.1 million during the life of the bonds. The savings will reduce university Housing's and Department of Athletics' annual debt service obligations during the next 15 years.
The university also refinanced bonds issued in 2009 to finance energy efficiency measures implemented across campus. The refinancing lowered the interest rate from 5.01 percent to 2.27 percent, which will save the university approximately $70,000 a year in principle and interest payments, Lovins said.
Appalachian has an Aa3 rating from Moody's Investors Service, which provides credit ratings, research, tools and analyses that contribute to transparent and integrated financial markets.