In a drive to sell $225 million in general obligation bonds this year, the University of Connecticut has opted to unleash a rare, $49,000 multi-platform advertising campaign.
The bond sale is geared toward funding the 189,000 square-foot biomedical research lab under construction on the university’s health center campus in Farmington. About $189 million of the bond sales will be new money for campus expansion, while the remainder will be “used to finance existing bonds at lower interest rates for savings,” according to a July 2 press release.
State Treasurer Denise Nappier said the university decided to use $49,000 of the bond sale proceeds to advertise the bond sale in newspapers, on websites, and on the radio in order to bolster awareness of the sale among potential individual and private investors.
Nappier said the “comprehensive marketing strategy was designed by the Treasury and UConn, along with Piper Jaffray & Co., lead underwriter on the sale.”
“In the early years of the UConn General Obligation Bond program, the marketing budget was higher in order to develop awareness,” Nappier said in an email. “In recent years, the marketing has expanded to include online digital advertising and to reintroduce radio advertising in order to refresh the program’s image in the marketplace.”
But Michael Scarchilli, the editor-in-chief of The Bond Buyer newspaper, said this type of advertising campaign for bond sales is unusual.
“It’s not a terribly common thing,” Scarchilli said. “The [bond issuers] have to see that there’s significant interest among private investors, but from what I understand about the UConn bond sales, there has been interest among those buyers.”
Scarchilli did point to a program that the state of California’s treasury department launched in 2007, known as the Buy California Bonds program, which was a sort of genesis for bond sale advertising initiatives.
Tom Dresslar, a spokesperson for California Treasurer Bill Lockyer, said increasing bond sales was Lockyer’s top priority in 2007, and after he assumed office the staff set to work developing a campaign.
“The reason increasing the retail purchase (of bonds) is important is because, to an extent, you heighten demand on that side, and you’re in a better position to control the interest rates that you pay when it comes time to negotiate with institutional investors,” Dresslar said. “It’s been very successful.”
Dresslar said California uses about $200,000 in bond revenue to fund its advertising campaign, and he said the success of the program “led to a smattering of issuers throughout the country who have expressed interest and are following our lead” on the multimedia advertising campaign.
Connecticut seems to be one of the issuers following California’s lead.
An advertisement for UConn’s bond sale can be heard on WNPR news, and BuyCTBonds.com has been up and running since 2009. But one initiative UConn is spearheading is the use of social media advertisements — via Linked In — to target the school’s alumni. The idea to use social media sites to target UConn alumni came from Corey SeaQuist, a UConn graduate interning in the Treasurer’s Office this summer.
“It is the usual practice that marketing costs come out of the proceeds of a UConn Bond sale. This is the first time we have done radio in several years — usually we do print and digital advertising when there is a retail order period as a pre-sale,” Nappier said.
This batch of UConn bond sales was issued second-tier ratings by three major Wall Street credit rating agencies. Moody’s Investor Service ranked the bonds at Aa3, Standard & Poor’s gave them a AA, and Fitch Ratings assigned the bonds a AA-, which is one notch below the AA grade Fitch gave to Connecticut state bonds.
Douglas Offerman, a senior director at Fitch Ratings, said even though the security of UConn bonds is closely tied to the security of the state’s own general obligation bonds, “state general fund obligations are seen as slightly less well secured, and UConn bonds fall within that category.”
Fitch also was the only rating agency to place both the state and UConn bonds on a “negative outlook,” which generally means the credit rating will be under review for the next one to two years.
In the report the rating agency attributes the negative outlook to “the state’s reduced fiscal flexibility at a time of lingering economic and revenue uncertainty. The enacted budget for the new biennium delays repayment of deficit borrowing, adds to an already high debt load, and fails to rebuild the state’s financial cushion.”
On July 2, Nappier said she was “disappointed” in the negative outlook, but she didn’t foresee the rating affecting the bond sales.
The bonds will go on sale for individual investors today and July 15, and for institutional investors on July 16. The sales are expected to close July 31.
Editor’s Note: An earlier version of this story mistakenly attributed Denise Nappier’s emailed statement to David Barrett, a spokesman in the Treasurer’s Office