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Colliers arranges novel real estate bond refinancing for Grand Canyon University

The university opted for a taxable bond financing with staggered maturities.

Colliers has arranged a unusual $1.2 billion bond financing for Grand Canyon University that will allow the Phoenix-area educational institutional to refinance debt associated with its 2018 transition back to a non-profit, as well as additional capital expenditures.

Barclays sold the bond and acted as the sole bookrunner on the transaction, the largest of its kind to be completed in the state.

The deal was about six months in the making according to Robert Kline, the managing director of structured finance for the Southwest region at Colliers and Jeff Black, the National Debt & Equity Platform Leader for Colliers Capital Markets. Colliers looked at a variety of financing methods to refinance the existing debt, which was maturing in 2025 and was secured by Grand Canyon University’s 270-acre campus.

Although Colliers and Grand Canyon looked at options that included the commercial mortgage-backed securities SASB market, which might have offered comparatively cheaper financing, the taxable seven-year bond structure that was finally put into place was selected so the university would be able to keep its funding sources flexible.

Grand Canyon University, rated Ba1 by Moody’s Investors Services, was founded as a private Christian university in 1949 and was owned by the publicly traded firm Grand Canyon Education from 2004 until it transitioned back to a non-profit in July 2018.

As a designated 501(C)(3) entity, the university can issue tax-exempt bonds, Kline said. However, the university found it could get far more competitive pricing on the tax-exempt market if it could produce financial records of operating as a non-profit for more than three years. As a result, the bond was structured with four tranches with staggered maturities of two, three, five and seven years.

“The system is designed to allow new loans come in with the same parity as the [bond tranches mature],” Kline said. “Going forward, as maturities come due from these bonds, the university is intended to take them out with tax exempt bonds.”

Over the past four years, the university has invested $1.6 billion into ‘academic infrastructure’ and generated $341 million in cash from operations. The university also reported enrollment during the pandemic increased by 14 percent and 466 new faculty and staff jobs on campus were created in 2020. The deal will allow the university to maintain a freeze on on-campus tuition, which has been in place for 13 years.

“Part of the rationale for tranching the bond offering in the way that we did was to effectively hyper-amortize the shorter end of the curve of the bond structures and pay off the principal balance on the front end,” Black said. “Ultimately, the structure with the bond market with Barclays as the book runner offered a highly customized bespoke solution.”

The financing paid down a $972 million secured bond issued as part of the purchase of the campus in the shift to non-profit status and a $500 million interim loan originated in October.

The Colliers team shopped the financing request in EMEA and APAC, with a wide range of investors that included family offices and institutions participating. Kline said some of the tranches in the $1.2 billion bond were oversubscribed.  During the underwriting process, the Grand Canyon University campus was appraised north of $2 billion, Kline said.

Grand Canyon University said it welcomed its largest incoming class in history in August when a total of 23,500 students and 90,000 students attending online, commenced their academic year.

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