USM Refinances Combined $127 Million in Outstanding Bonds, Saves State $13.4 Million While Debt Ratings Remain Strong

Baltimore, Md. (Oct. 3, 2019) – Maryland taxpayers will save $13.4 million from the University System of Maryland’s (USM) successful and recent refinancing of previously issued public bonds.

The USM closed the refinancing on Oct. 2 after a recent auction attracted seven bidders. The winning bid, presented by Citigroup Capital Markets, means the system will owe $13.4 Million less to bondholders now that the refinancing is complete.

Strong ratings issued by the nation’s three primary bond-rating agencies are, effectively, the equivalent of a robust grade-point average for a college student. During the refinancing process, the agencies reaffirmed the USM’s robust ratings. Each rating was only one level down from the highest possible grade of AAA, with a stable outlook, in part due to analysts’ confidence in the quality of leadership and financial management across the system. The USM had its current ratings of Aa1 (Moody’s Investor Services) and AA+ (Standard and Poor’s, Fitch Investor Services) reaffirmed, with an outlook of “stable” from each rating agency.

The ratings agencies have informed the USM financial team that the system’s strong ratings are grounded in USM’s long and ongoing history of prudent financial management and effective leadership from the Board of Regents and Chancellor, and the day-to-day work of university presidents and management to operate campuses effectively in an environment of fiscal responsibility and accountability. 

“As chancellor, I am quite proud of the USM’s tradition of superior credit ratings for our bonds, and the benefit these ratings bring to our state, and the people the system serves, with an affordable, accessible education,” said USM Chancellor Robert L Caret. “It is gratifying to see such a tangible return for the benefit of the USM and state taxpayers, given the more than $13 Million in interest savings from this refinancing.”

Caret also noted that the USM benefits from an effective partnership with the administration of Gov. Larry Hogan and the Maryland General Assembly.

“The state's continued support of the USM's mission as a system of public higher education has resulted in affordable tuition, support of key initiatives, and construction of important capital improvement projects on campuses to support current students and attract prospective students,” he said.

Ellen Herbst, USM’s vice chancellor for administration and finance, agreed with the chancellor’s assessment and said the savings from the bond refinance will be put to good use.

“USM institutions have a long list of facilities and capital projects that require an annual investment of more than $400 million to provide and maintain a safe and productive environment for our students, faculty and staff,” Herbst said. “The system’s revenue bonds fund about $115 Million of the capital spent annually, and taking advantage of refinancing opportunities as market interest rates change helps the USM minimize its capital costs.”

In the Oct. 2 transaction, the USM refinanced $127 Million of 2010 Series B Build America Bonds with $108 Million of 2019 Series C Refunding Bonds. Citigroup Global Markets’ winning bid resulted in a true interest cost of 1.56 percent.

True Interest Cost (TIC) is a measure of financing cost that considers the actual cost of issuing a bond and the sale-price premium that buyers of the bond were willing to pay for the bonds. When there is a lower TIC, savings occur. A lower TIC represents a cost savings to the institution that has issued a bond, because the institution will owe less money in interest that will be due to the bondholders.

The University System of Maryland (USM) is the state’s public higher education system. USM’s 12 institutions, three regional higher education centers, and system office work closely together to leverage their collective expertise and resources, share best practices, increase the system’s effectiveness and efficiency, and advance USM’s mission to improve the quality of life in Maryland.

Contact: Mike Lurie
Phone: 301.445.2719