From staff and wire reports
Higher education officials will allow Mississippi State University to enter the “commercial paper” market to obtain $50 million for future construction projects.
The state college board approved Mississippi State’s request Thursday.
The commercial paper market is short-term IOUs that companies sell to meet cash-flow needs. Issuing commercial paper is a way for companies to borrow money for short periods of time to finance their day-to-day operations. Most commercial paper is unsecured debt, but some of it is backed by assets such as mortgages and credit card debt.
MSU must get further board approval for each specific project where it would be used — for example, in the plans to improve and expand the Davis Wade Stadium.
Wayne Bland, MSU associate vice president for budget and planning, said three advantages of the “commercial paper” initiative are the short-term savings, the ability to package and handle multiple projects at once and the ability to more accurately assign long-term debt.
“The biggest issue here is that the short-term rates are so low it’s practically historical,” Bland said. “The first project I anticipate we can use this for is the stadium project. My goal is to have this (financing) operation in place and ready to use July 1 if it is needed.”
No official stadium renovation designs have been approved yet, athletic department officials said Friday.
“This is something that I’ve been convinced will allow us to more efficiently and more effectively manage some of our larger capital projects,” MSU President Mark Keenum said at Thursday’s board meeting. “It will save us millions of dollars in interest costs.”
Commercial paper is not available to all Mississippi public universities. As it is targeted for large, ongoing capital projects, $50 million is the minimum program size, and an eligible institution would need to have liquid investments equal to 1.5 times that amount.
Borrowers pay off the commercial paper by selling bonds — in other words, converting the short-term debt to long-term debt.
The risk is that interest rates could increase at any time, and the rates that borrowers would need to pay after converting the paper to bonds could increase at any time.
MSU officials said they will monitor long-term interest rates regularly to determine the timing of when to convert the commercial paper to fixed-rate bonds.
College board members said they were concerned whether MSU would be prepared if things go bad.
Don Zant, vice president for budget and planning at MSU, said the school intends to be careful.
“Just because you have a tool doesn’t mean you use it. You use it at the right time and the right place,” he said.