Princeton, Vanderbilt Wooed by Life Insurance Companies for Private Debt

(Bloomberg) -- Life insurance companies are pursuing wealthy private colleges as a lucrative growing market to lend money, the latest Wall Street sector where private debt is making inroads.

Princeton, Vanderbilt and Carnegie Mellon universities and the University of Rochester are among schools that have borrowed from insurance companies, according to public records and regulatory filings.

The life insurance deals mark a shift from the traditional way that schools borrow by issuing bonds, mostly tax-exempt. But the insurance companies can do the deals more quickly and easily, making them attractive for colleges to refinance debt, spruce up dorms and for new construction. Insurers have been building up lending in commercial real estate and private debt, seeking ways to find higher-returning investments as the 10-year Treasury yield hovers close to 1%.

Life insurers, which often heavily invest in bonds to match payouts to customers, are eager to put money to work at a time when conventional corporate and government debt pays little. And they have a healthy appetite for these college deals in their portfolios, according to Roger Goodman, a partner with the Boston-based Yuba Group, a financial adviser to universities and nonprofits.

“They are certainly pursuing making these loans more aggressively,” Goodman said. “They need to make fixed-income, high quality investments on a long-term basis and may not have been getting large allocations from public deals.”

Disclosure Requirements

Insurance companies are one of the largest investors in private debt, making up about 9% of the base, according to research firm Preqin.

Another advantage of private placements for colleges is that they don't have to go through the public market where disclosure requirements are higher. Prepayment may also be more feasible if needed, and that's not always the standard in public markets, Goodman said.

The University of Richmond and the University of Rochester are among schools that borrowed from New York Life.

Rochester last year took a 30-year $50.7 million loan at 3.26%, which primarily covered renovations in Strong Memorial Hospital. The school did its first private deal in 2017 for $49.3 million, financing an offsite hospital laboratory building expansion and other renovations.

The deal came about because of a cold call, said Holly Crawford, the school's senior vice president for administration and finance.

“They approached us, looking for an increased commitment to private markets with a focus on nonprofits,” Crawford said in an interview. “They see that higher education has stable institutions that are here for the long term and a good way to diversify.”

Checked Around

Rochester checked with other schools that had borrowed through these types of deals before committing, and going forward will use private placements where it makes sense, Crawford said.

The University of Richmond also took a chance on a cold call and ended up borrowing $40 million through a taxable fixed-rated note over 30 years. The money refinanced existing debt and several capital projects, including the planned renovations to two of the oldest dorms, named for trustees of the school who served in the 1800s.

Jeter Hall, named for Jeremiah Bell Jeter and originally constructed in 1914, was reconfigured from a 107-bed traditional dorm of compact sleeping rooms to semi-suite style with 83 beds. The conversion was similar at Thomas Hall, named for former trustee James Thomas Jr. and built in 1912.

Richmond, a private school in Virginia, could do the transaction quickly with a competitive rate, said David Hale, the school's executive vice president and chief operating officer.

“We had concerns that rates wouldn't stay low for that much longer,” he said.

Hale said the school worried that turning to the public markets -- of which it already has about $195 million in tax-exempt debt outstanding -- would have taken longer and rates could have gone higher.

New York Life declined to comment.

Direct Basis

Vanderbilt borrowed $300 million in 2018 for refinancing and construction of its residential college system.

“We'll certainly will be back in the public market at some point,” said Trey Beasley, assistant vice chancellor for Treasury. “It's a way to source capital on a more direct basis.”

Princeton University was also approached for its two transactions, said Jim Matteo, vice president and treasurer of the Ivy League school. The school borrowed $170 million in 2012 and $75 million in 2013 in taxable debt.

Princeton, the fourth-richest private school in the U.S., used senior unsecured notes to finance graduate student housing, maintain academic buildings and other construction projects. The notes ares due in 2042 and 2044.

School officials declined to name the lender, though regulatory filings show it was John Hancock Life Insurance Co. The company declined to comment.

Princeton was able to execute quickly and efficiently without a public offering document and ratings, and avoid certain fees associated with a public bond issue. The school also liked the idea of getting a deal completed faster, Matteo said.

“We'd be willing to consider it again if we can find the right timing and buyer,” Matteo said.

--With assistance from Katherine Chiglinsky.

To contact the reporter on this story: Janet Lorin in New York at jlorin@bloomberg.net

To contact the editors responsible for this story: Sam Mamudi at smamudi@bloomberg.net, Michael B. Marois, Natalie Harrison

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