University of Minnesota first university in nation to use new financial tool created by economic stimulus package
University to save $2.7 million by using Build America Bonds
Contacts: Patty Mattern, University News Service, (612) 624-2801
MINNEAPOLIS / ST. PAUL (04/17/2009) —The University of Minnesota is the first university in the nation to use a new financial mechanism that will save the university money as it borrows for capital projects. The new tool came about from the nation’s economic stimulus package.
This week, the U of M issued approximately $82 million in general obligation bonds, $45 million of tax-exempt bonds and $37 million of Build America Bonds, which were authorized under the America Recovery and Reinvestment Act. Build America Bonds allow state and local governments to issue taxable bonds for projects eligible for tax-exempt financing and to receive a new direct federal subsidy payment for a portion of their borrowing costs. The United States Treasury Department will make a direct payment to the university in an amount equal to 35 percent of each interest payment due over the next 20 years while the bonds are outstanding.
The bonds priced Wednesday with a 3.81 percent cost of borrowing, resulting in over $2.7 million in cash flow savings for the university over the life of the bonds. The tax exempt bonds will mature in 2021, and the Build America Bonds will mature from 2022 to 2028.
The money from issuing the bonds will be used for capital projects - purchases of land and buildings, construction and remodeling projects, and the acquisition and installation of equipment - including the reimbursement of the university for certain amounts previously expended for the costs of such projects. Projects include the new Medical BioSciences Building, the Science Teaching & Student Services Building, and the East Gateway District expansion on the Twin Cities campus, a new residence hall on the Crookston campus, and the Griggs Field renovation at the University of Minnesota, Duluth.
Wells Fargo Brokerage Services and Wachovia Securities are the underwriters for the bond issue.