The University of California will refinance $1 billion of debt this month, which could potentially save the university millions of dollars.
The refinancing is expected to lessen the university’s debt burden by reducing the interest rate on a portion of the debt from about 5 percent to 3.5 percent, according to UC spokesperson Dianne Klein.
“It’s 100 percent refinancing, and the transaction is being used to save money on debt service,” said Tom Dresslar, director of communications for the state treasurer’s office. “The interest rate environment is pretty good right now.”
The bonds for sale this month are General Revenue Bonds, which the university uses to borrow money for general expenses like education and research. Klein said the bonds will mature from 2014 through 2039 and be sold through the California State Treasurer’s Office.
“Based on current market conditions, the university expects to save approximately $200 million,” Klein said. “The university is taking advantage of the current low interest rate environment to reduce its cost of capital.”
The savings from refinancing, however, are not yet certain because the bond sales have not finished. Through refinancing, the UC system saved $20.5 million in 2012 and $19.1 million in 2011, according to its 2011-12 Annual Financial Report.
“The revenue that pays off these bonds — some of it comes from students,” Dresslar said. “So to an extent, when the UC saves money on borrowing costs, that means that students have to shell out less from their pockets for the bonds.”
The UC currently has $17.3 billion of outstanding debt — an increase of almost $3 billion over the last year — according to the annual report. A majority of those funds came from the sale of $2.5 billion of General Revenue Bonds over the course of the last fiscal year.
Jacob Brown is the lead higher education reporter. Contact him at [email protected]l.org.