The University of Montana- Missoula
Series I 2004
Refunding and Facilities Improvement
Revenue Bonds


The University of Montana issued revenue bonds in 1993 for the purpose of constructing and renovating facilities on campus. The outstanding bonds from the 1993 issue are at interest rates between 4.5% and 5.0%, with maturities extending through November 2015. The earliest date these bonds can be "called" (paid-off) is May 15, 2004 according to covenants of the indenture. Current historically low interest rates, between 1.2% and 3.8% for a current refunding, and the ability to exercise call privileges in May present The University of Montana with the unique opportunity to issue bonds and pay off the 1993 debt. The result of this transaction will net the University an estimated $1.5 million. This cash will be used to address deferred maintenance projects on campus. An interest sensitivity analysis (Attachment A) indicates that the market would have to move up more than 30 basis points before the net present value savings generated would be less than 3%. Three percent is the general rule of thumb in determining the financial feasibility of a refund. The bonds will be issued over the next 30 to 45 days, which limits the likelihood of a significant rate increase.


"Skaggs" Building Addition

In 2000, the newly constructed "Skaggs" building opened providing new space for instructional and research activities in the School of Pharmacy. Since that time, the School of Pharmacy has climbed to seventh nationally, among 85 schools and colleges of pharmacy, in receipt of biomedical research funding. Up from $1.5 million in 1999, research funding reached $11.0 million in 2003, a 633% increase (Attachment B). This rapidly

increasing research activity, however, has created serious space constraints for the School. In an effort to address this space issue, the School submitted a proposal and received $3.0 million federal grant from the National Institute of Health (NIH) to be used towards a $14.0 million, 59,000 sq.ft. addition to the "Skaggs" building (Attachment C). The grant requires a minimum of a 1:1 funding match. In addition to the grant funding, the University President and Dean of the School of Pharmacy are engaged in private fundraising to generate $4.0 million for the new facility. Bond proceeds combined with the grant and private donations provide the necessary resources to construct the new facility. The new space will support the expanding programs in biomedical research as well as graduate education and professional program development.

Biomedical research supported by grants from outside Montana represents a major economic enterprise as well as the opportunity for employment for graduates of Montana's public schools and universities. Significant indirect cost monies also will return to the University through increased research activities. The School of Pharmacy estimates grant funding will reach $25.0 million by 2009 if the new facility is built (Attachment D).

Deferred Maintenance

Deferred maintenance continues to be a serious problem for the campus. Bond proceeds of $1.5 million; combined with cash savings from the refunding of the 1993 bonds, provide an opportunity for the University to address nearly $3.0 million in repairs and renovations on campus. The following are examples of the deferred maintenance projects this funding will go towards:

  • Critical Sidewalk Replacements
  • Furnace Replacement West COT
  • Library Flooring
  • Window Replacements
  • University Hall Electrical Distribution Upgrades
  • Replacement of Interior Steam Lines
  • Roof Repairs


D.A. Davidson, the University's bonding underwriter, recently conducted a debt capacity analysis for UM. The Executive Summary* from the report (Attachment E) indicates that the University easily has credit capacity to issue new debt. Annual debt service relating to the expansion of the "Skaggs" building and deferred maintenance projects is approximately $500,000 amortized over 25 years. This debt will be supported through a Current Unrestricted Funds Allocation, including general fund and indirect cost recoveries.

Given the University's debt capacity and ability to exercise call privileges on existing debt, current market conditions, the receipt of a NIH construction grant, and the likelihood that the Long Range Building Program will have limited resources for deferred maintenance, we believe it is in the best interest of The University of Montana-Missoula to issue the Series I 2004 Revenue Bonds.


*The full report also is available