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Emory University to borrow $2.1 billion with support from Georgia

By David Pendered

Georgia has agreed to issue up to $2.1 billion in bonds on behalf of Emory University. The money is to help fund new construction and refinance existing debt.

Emory University’s construction of health care facilities, such as this one along Clifton Road a few years ago, has been deemed as a benefit to the public and worthy of the state’s help in gaining access to financing at favorable interest rates. Credit: Kelly Jordan

Investors have purchased the first round of bonds, which totaled about $486 million and went to market May 20, records of stock trades show. Emory will pay interest rates of 5 percent or less, with rates decreasing for bonds that are to mature as the bonds are to be paid in full, in 2041, according to terms of the bonds.

Moody’s Investors Service rated the bonds at its second-highest rating: “high quality and are subject to very low credit risk.”

State taxpayers are not on the hook to repay the debt, which is to be issued by the Georgia Private Colleges and Universities Authority.

Other Georgia schools that have benefited from similar bond sales by the authority include Spelman College, Mercer University, Clark Atlanta University, and Savannah College of Art and Design, according to a history of the authority’s transactions.

The premise of these deals is that they benefit both citizens of the state and the private colleges and universities.

The deals begin with the state authority determining that a public good will arise from the project to be built by the private college or university.

Once that decision is reached, the authority recommends to the governor that the state agree to sell bonds. If the governor agrees, the bonds will be tax exempt because they are issued by the state as private activity bonds. The governor’s ruling determines the bonds are tax exempt under provisions of the Internal Revenue Service.

Here’s how a report to Congress, by the Congressional Research Service, describes the benefit for citizens of the state and investors:

  • “The lower interest rate arising from the tax-exempt status subsidizes state and local investment in capital projects.
  • “For example, if the taxable bond interest rate is 5.00 percent, the after-tax return for a taxpayer in the 37 percent income tax bracket who buys a taxable bond is 3.15 percent. Thus, a tax-exempt bond that offers a 3.15 percent interest rate would be just as attractive to the investor as the taxable bond, all else equal.”

Gov. Brian Kemp authorized the bonds to be issued by the state authority in an executive order dated May 11. The authority approved the proposed bond issuance at a public meeting April 16, according to the governor’s executive order.

Emory, clifton road

Emory University has expanded its network of health care facilities in ways that warrant a subsidy from the state in the form of help in obtaining reduced borrowing costs for construction, state officials have determined. Credit: Kelly Jordan

The executive order provides this detail about two distinct uses of the proceeds of the bonds:

  • $700 million – to finance or refinance the cost of the, “acquisition, construction and installation of certain university facilities;”
  • $1.4 billion – “to refund obligations and outstanding indebtedness previous issued by the Private Colleges and Universities Authority for the benefit of the university.”

Moody’s issued a credit rating on May 4 that provided a positive view of Emory’s financial position, and its wherewithal to repay the loan.

The rating did observe financial challenges: Emory is not immune from challenges related to COVID-19 and its potential impact on revenue streams related to investments, student enrollment and health care functions. The rating action observes:

  • “Additional considerations include lagging net tuition revenue growth relative to peers and modest reserves and liquidity relative to operations. In addition, leverage will substantially increase with the current issuance, a credit challenge during a period of significant uncertainty.”

However, Moody’s analysts added that the outlook for Emory’s financial position is stable:

  • “The stable outlook reflects our expectation that Emory will successfully manage through the next year of challenging credit conditions while making progress in integrating its recent healthcare acquisitions.
  • “Our outlook incorporates our expectation that Emory will be able to move to improved and sustained operating cash flow margins of at least 10 percent by fiscal 2022, with ongoing favorable fundraising support. Should downside risks accelerate, the rating or outlook could be negatively impacted.”


David Pendered

David Pendered, Managing Editor, is an Atlanta journalist with more than 30 years experience reporting on the region’s urban affairs, from Atlanta City Hall to the state Capitol. Since 2008, he has written for print and digital publications, and advised on media and governmental affairs. Previously, he spent more than 26 years with The Atlanta Journal-Constitution and won awards for his coverage of schools and urban development. David graduated from North Carolina State University and was a Western Knight Center Fellow.


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