Southeast Missouri State University regents to finalize bond financing

Wednesday, December 8, 2010

The Southeast Missouri State University Board of Regents today is expected to finalize financing for a $59.25 million borrowing plan to pay for a campuswide renovation and maintenance campaign.

But interest rates have risen over the past couple of months due to the popularity of a government building loan program, driving up the total cost of Southeast's borrowing plan.

Bond dealers Tuesday were pricing the bond package in advance of the regents meeting this afternoon. Kathy Mangels, Southeast's vice president for finance and administration, said interest rates in the bond market have risen by about 50 basis points since the board approved the scope of the plan in October, thanks to a surge in the issuance of federal Build America Bonds. The U.S. Treasury subsidizes 35 percent of the interest expense on the bonds. In the case of Southeast Missouri State, interest would total $24 million over the life of the 30-year loan.

"With those [the federal program] ending Dec. 31, there's a lot of institutions, not just in Missouri, who are looking to take advantage of it before that program potentially ends," Mangels said. "That has impacted the market."

Mangels said the added interest will slightly increase debt service costs on a construction plan pegged at $58.3 million, with another nearly $1 million marked for administrative costs.

But the university still will net the same proceeds from the bond sale, the administrator said, and the increased interest costs have been incorporated into Southeast's debt funding plan. A large share of debt repayment will be borne by students, who will pay an additional $5 fee per credit hour on top of a $6 maintenance fee in play. The board of regents today is expected to approve a Student Government Association recommendation to phase in the $5 fee increase, beginning with a $2 bump in fall 2011, $2 more in fall 2012, and the final $1 added to the student bill the following year.

Auxiliary services, like the residence halls and the University Center, which had been targeted to pay $150,000 to the annual debt service fund, will contribute $200,000. Those services, Mangels said, benefit from power upgrades and other campus improvements. The university also will hasten its schedule to pay down 2002 series bonds, freeing up that funding for debt on the renovation and maintenance work.

"We've reworked other parts of the bond issue to keep us close to the same annual and principal we anticipated in October," Mangels said.

The board of regents had considered the Southeast Missouri State University Foundation as a potential funding source in October. Southeast president Dr. Ken Dobbins said the foundation will not be involved at this time.

"Our students had the option of asking the foundation, but they believed that was not an option they wanted to take," Dobbins said.

The Missouri Health and Educational Facilities Authority earlier this month approved the issuance of bonds, and the university's bond counsel has given the financing plan a clean bill of health, noting that state appropriations would not be used in the project.

The construction campaign is slated to begin next summer, Mangels said, with the first round of bids being let in spring. Renovations would include a $22.78 million upgrade of the campus' century-old Academic Hall and a nearly $18 million improvement and expansion of Magill Hall, the university's science building. The proposal also calls for nearly $10 million in deferred maintenance projects and nearly $7 million in power plant upgrades.

mkittle@semissourian.com

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