LAU’s bond initiative raises $75m for key strategic initiatives (longer version)
More than two years ago, LAU embarked on implementing an ambitious and challenging five-year strategic plan. Around the same time, the Board of Trustees approved establishing a new medical school, in collaboration with Harvard Medical International (HMI). Almost a…
More than two years ago, LAU embarked on implementing an ambitious and challenging five-year strategic plan. Around the same time, the Board of Trustees approved establishing a new medical school, in collaboration with Harvard Medical International (HMI). Almost a year ago, the Board approved the addition of a nursing school. Meanwhile, the university’s efforts to acquire full accreditation from the New England Association of Schools and Colleges (NEASC) are well under way, with the first phase of accreditation candidacy successfully completed in September 2007. To respond to these major undertakings, the university prepared a five-year capital plan, and a corresponding financial plan.
In order to implement the capital plan, as approved by the Board of Trustees, at an estimated cost of US$120M, and to expand the Beirut Campus through land acquisition, the university officers started exploring innovative ways to finance these ambitious plans, without compromising the financial security of the university, or the stability of its operations.
At this juncture, LAU’s President Joseph Jabbra started contemplating the possibility of debt financing through bond issuance in the United States. The benefits of such an endeavor would be three-fold: securing the required funds; providing a new forum to promote the LAU success story in the American financial markets; and obtaining favorable American ratings as a further recognition of the university’s sound management, and strong academic and financial competitive position.
Accordingly, in March 2007, a decision was made to fully explore this idea, knowing well that the process will be extremely complicated, and the hurdles quite substantial. Although, as an American institution, LAU’s finances were strong, the university still had to convince the American financial markets that operating in a volatile and politically unstable country had no immediate negative impact on the university. Also, it had to persuade the rating agencies of its current strengths and future opportunities.
In May 2007, and in close consultation with the Chairman and other members of the Investment Committee of the Board, Morgan Stanley joined the initiative as financial adviser and underwriter for the bond issuance transaction.
An LAU team, commissioned by the President, began a series of extensive meetings with the top two rating agencies in the United States, Moody’s and Standard & Poor’s. Parallel to these meetings, the LAU team, with representatives from Morgan Stanley, also started meeting with top insurance companies specializing in bond insurance for higher-education institutions. In addition, the team prepared an impressive document in which the university’s success story was related and substantive proofs of its strengths, supported by facts and figures, were presented. The circulation of this document among the top U.S. financial establishments was met with positive and encouraging responses.
In September 2007, the “A3” rating of Moody’s on the global scale came out. Thereafter, Standard & Poor’s graced LAU with an “A-” rating. These two ratings from the two top agencies in the world, allowed the university, based on Morgan Stanley’s advice, to issue uninsured bonds.
With the ratings and the structure in place, the Board of Trustees, after many presentations by the LAU team and careful consideration of the transaction, resolved, in September 2007, to authorize the issuance of the bonds, and commissioned its Executive and Investment Committees to follow up on the transaction progress.
Thereafter, diligent work commenced to prepare the transaction and present it to interested investors. Upon completion of all preparatory work, the Executive Committee of the Board of Trustees authorized the sale of the bonds, which were offered on the market by the end of October 2007.
The LAU bond issuance transaction coincided with a period of extreme volatility in the American financial markets and a sub-prime mortgage crisis. Losses and loan write-downs were in the tens of billions of dollars; high-profile financial firms in the United States were experiencing substantial difficulties; and CEOs were resigning, or foregoing bonuses. Amid this extremely challenging environment, LAU presented the bonds to investors, and waited for the best offers to come, refusing to allow the crisis to adversely affect the university’s best interest.
The university’s efforts culminated in a remarkable success in early February 2008, when the sale of its US$75M bond issue to Byblos Bank in Lebanon was finalized. It is important to note that notwithstanding the political instability in Lebanon, both rating agencies, Moody’s and Standard & Poor’s, reaffirmed, in February 2008, their September 2007 ratings of the LAU bond issue.
The LAU bond issuance was completed on February 12, 2008, thus making LAU the first American higher-education institution operating in the Middle East to finalize successfully such a pioneering financial transaction. This success will secure the required funds for LAU to implement most effectively its ambitious capital plan and to provide the youth of Lebanon and the region an opportunity to earn a second-to-none education.
This achievement was celebrated at a reception held at the lobby of LAU’s Central Administration Offices in Beirut on March 11. Present were Byblos Bank executives headed by Dr. François Bassil, the management team of KPMG Lebanon and members of LAU’s executive and finance administration.
During the reception, Dr. Jabbra thanked the university’s Board of Trustees for taking this important step, which will ensure sufficient funding for the university’s plans and aspirations. He also thanked all those who contributed to the success of this step, especially the people in the Finance and Legal Departments at LAU who worked extensively and restlessly to conclude this transaction. Dr. Jabbra extended special thanks to Dr. Bassil, Chairman of Byblos Bank, for having contributed to Lebanon and LAU.
In his turn, Dr. Bassil thanked Dr. Jabbra and the LAU team for their great efforts over the past years, as well as their predecessors for rendering this academic institution, which carries Lebanon’s name, well renowned in the Arab region and the entire world.
He stressed the importance of LAU’s role in educating the youth to love their country, especially during these testing political times the country is passing through.