Grand Canyon University to sell $520 million of taxable bonds

Phoenix-based Grand Canyon University, which had planned a privately placed refinancing of maturing 2021 bonds this summer, heads to the municipal market this week with a $520 million deal to refund loans.

Sole underwriter Goldman Sachs (GS) is scheduled to price the taxable revenue bonds issued through the Maricopa County Industrial Development Authority on Thursday.

Proceeds will refund two cash-collateralized bridge loans the university used to refinance $500 million of Series 2021B bonds that matured on Oct. 1 and pay down a line of credit for capital expenditures from UMB Bank, according to an investor presentation for the deal.

The Christian university, which is embroiled in regulatory disputes, sold $1.2 billion of taxable revenue bonds in 2021 to refinance the remaining balance of notes it issued in 2018 to fund the purchase of the university's assets from publicly traded Grand Canyon Education (LOPE).

University spokesman Bob Romantic said the public debt sale will be limited to qualified institutional investors and that more refinancings are anticipated.

"The university has and will continue to amortize approximately $50 million of the outstanding series 2021B bonds annually," Romantic said in an email. "There will be a need to refinance maturities in excess of $50 million in 2026 and 2028."

The bonds are rated speculative-grade Ba1 by Moody's Ratings and at the lowest investment-grade rating of BBB-minus with a stable outlook by Fitch Ratings.

Moody's, which revised the school's rating outlook to negative from stable in January, said regulatory risk, including litigation with the U.S. Department of Education and other agencies, weighs on GCU's credit quality.

A U.S. appeals court this month ruled in the university's favor in its appeal of a 2022 district court ruling that sided with the federal education agency's denial of the university's tax-exempt status for the purposes of Title IV federal financial aid programs, according to the deal's preliminary limited offering memorandum.

Grand Canyon was a nonprofit from its creation in 1949 until 2004, when it was sold to private investors. It regained its 501(c)(3) status from the Internal Revenue Service in 2018 after its purchase from Grand Canyon Education (LOPE).

The offering memorandum said the school is undergoing an IRS examination and that a federal probe into tuition costs resulted in a $37.7 million fine, which it is appealing. The university is also being sued by the Federal Trade Commission over advertising and marketing practices contracted through Grand Canyon Education (LOPE).

The Series 2021B and 2024 bonds are secured by a pledge of gross revenues and a first lien mortgage on the university's core campus, according to Moody's.

"Effective enrollment management in online and on campus segments will provide the university with the ability to invest in new programs and facilities, while generating adequate debt service coverage," Moody's said in a report.

As of Sept. 30, the university had 24,657 in-person and 98,345 online students enrolled for a total of 123,002, up from 118,227 in 2023.

In September, Fitch Ratings affirmed a BBB-minus rating and stable outlook for the bonds that it assigned earlier this year to the private placement.

The bonds are structured with a single 2029 maturity, according to the offering document.