Anatomy of a deal: the University of Chicago's Midwest winner

When the University of Chicago's deal team embarked on the largest financing ever issued through the Illinois Finance Authority, the team had several goals. One was to transform the university's capital structure; another was to secure funds for projects including an upgrade to the quad and a new engineering and science building that will house a collaborative space for the Chicago Quantum Exchange.

The university where researchers discovered how to split the atom applied that same spirit of inquiry to the recapitalization of its debt portfolio and to financing the new home of the Pritzker School of Molecular Engineering.

"I love the fact that we had a working group that came together to think through what was a fairly complex set of structuring issues," said Jennie Huang Bennett, the university's associate vice president of finance. "We ultimately created a structure which was diversified so that we can take advantage of different markets as we move through the remainder of the debt portfolio."

The intricate deal won the Midwest category of The Bond Buyer's 2024 Deal of the Year awards.

It was divided into three series of bonds ? tax-exempt Series 2024A and 2024B, issued through the Illinois Finance Authority, for $1 billion; and Series 2024C taxable fixed-rate bonds, a $212.8 million corporate offering under the university's name that achieved interest rate savings relative to existing bank structures..

The bonds themselves are only part of the whole: the structure also incorporated opportunistic modification of interest rate hedges; reconfiguration of variable-rate debt; tender offers for both municipal and corporate debt; the conversion of future taxable debt to tax-exempt using funded interest; and the issuance of forward delivery bonds.

Bennett said the recapitalization of the university's overall debt portfolio changed its level of variable versus fixed-rate debt; introduced intermediate fixed bullets, which the university had not previously had in its debt structure; reduced the total amount of its line of credit by approximately $350 million; restructured the variable-rate portfolio to better manage rollover risk as well as the total cost of variable-rate debt; and incorporated the tender transaction.

The tender offer for $973.975 million of outstanding debt achieved a 57.7% acceptance rate on the tax-exempt side and 22.3% for corporate paper, the nominating statement said.

All told, Bennett said, the university generated $90 million of net present value savings in fiscal 2025 and about $30 million of NPV savings for the tender.

The bonds carried ratings of AA-plus with a negative outlook from Fitch Ratings; Aa3 with stable outlook from Moody's Ratings; and AA-minus with stable outlook from S&P Global Ratings.

"The amount of moving parts by far was the most this agency has ever seen," said IFA Managing Director Brad Fletcher. "There were taxable loans being taken out; there were prior tax-exempt bonds being taken out; tenders; new money; and timing considerations, which resulted in a forward delivery. By and large, this was the most complicated transaction I have participated in with respect to structuring."

But there was a clarity of purpose behind all the financial complexity, said Christopher Good, managing director at RBC Capital Markets, lead underwriter on the deal along with JP Morgan and Wells Fargo Securities.

Chapman and Cutler was bond counsel and Yuba Group was financial advisor.

"Even though the mechanics and the assessment of the different variables associated with this financing were complicated, the overall goal we were trying to achieve was in many ways very simple," Good said. "And that was really to optimize the capital structure to mitigate risks, and to achieve near-term income statement savings in a way that provides operating flexibility for the university."

Good said the deal required everyone to stay nimble, but that was actually a benefit, in that it ensured that the approach they ultimately took was the right one.

"Every two weeks we would get on a phone call, and we'd have to rethink the entire plan of finance from scratch," he said. "Something new came to light, and it was back to the drawing board on everything ? You couldn't let your thinking get stale at any moment, even if it did feel like sometimes we were going back to the starting line."

But the precision that Bennett expected of her team ? and their decision to use virtually every financing mechanism available to an issuer ? paid off in the end.

Bennett is a veteran of former Chicago Mayor Lori Lightfoot's administration, in which she served as chief financial officer, and has earned considerable respect in Chicago public finance circles.

"Jennie has demonstrated exceptional leadership in the municipal finance sector, both as a banker at Morgan Stanley (MS) and in her role as CFO at Chicago Public Schools, the City of Chicago, and now at the University of Chicago," said Beth Coolidge, head of public finance at Oppenheimer & Co. "Her expertise as a quantitative banker has been instrumental in guiding these institutions through challenging financial periods.

"Her ability to navigate complexity and drive meaningful outcomes underscores her profound impact in the field," Coolidge said.

Bennett aims for precisely structured transactions that address rollover risk, among other things, regardless of how many moving parts the deal includes.

"The other challenge [on this deal] was that we entered the market in a volatile time frame," Bennett said. "There were a lot of questions in the market around what the Fed rate action was going to look like and the pace of interest rate cuts throughout the year.

"There was a period of volatility where at one point we saw the transaction move away from us ? the transaction size got very small at one point because of that ? and then we saw a reversal of that market that created a market opening for approximately a couple of weeks," she said. "And we took advantage of it."

Members of the working group had put so much effort into preparing the transaction at that point that they were able to jump into the market when they saw an opening and achieved a relatively effective pricing.

The deal benefited from a unique market environment that included a distinctive mix of relative value between swaps and fixed rate bonds, plus a fairly low interest rate environment on the fixed-rate side, Bennett noted.

She added she'd encourage other issuers to encourage their working groups to make use of the full array of tools available to them.

"Relying on the deal team, but encouraging the deal team to also have those conversations and to spark that creativity, I think is really a critical part of getting to what I hope all muni transactions could look like at some point in time," she said.

"When Jennie speaks to pushing the envelope, what that looks like is asking a lot of questions to understand options without any precedent, or where the deal team is learning something new," said Karin Luu, director of financial planning and analysis and debt capital markets at the university. "For example, understanding the impact from a finance, accounting and legal perspective around funded interest, partial swap termination and more."

Chapman's Nancy Burke and Sarah Breitmeyer said by email that the greatest challenge from their perspective was the need to assemble a combination of structures based on debt portfolio and capital needs "that could be accomplished under the law and underlying document provisions. These structures were also dependent on market conditions and needed to remain fluid to address changing conditions."

They evaluated some structures but did not act upon them due to legal or document constraints, Burke and Breitmeyer said, and the university encouraged the team to think anew about "a wide variety of interconnected structures."

The deal also required open lines of communication between team members and frequent contact, they said, to stay on top of rapidly changing market conditions.

"The thing that has been most impactful to me about the transaction is that you're never wrong to go back to the starting line again and rethink the basic principles that you are using in figuring out the deal," RBC's Good said. "It was really great to have that high standard of work on this transaction, and it's reflected in how successful the transaction was."