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Bonds 101: Students participate in live capital finance project

white man in suit, Chuck Ellingsworth, room with students
Chuck Ellingsworth of Raymond James leads students in discussion about bonds on pricing day. Alexandra Byrnes (far right) of PFM Financial Advisors LLC looks on.

Finance-savvy students might geek out at the prospect of sitting in class learning about debt instruments and how institutions use them for funding large capital expenditures. Others might not be so interested. But likely all can agree that if given the chance to witness a capital funding campaign unfold in real time, Wall Street-style, they’d take that over lectures and textbook learning any day.

That’s what happened Wednesday, Jan. 12, in the Younts Conference Center when Furman University opened up the sale of bonds to the market to finance Furman’s $70 million South Housing construction and renovation project announced this week.

students in Younts Conference Center on bond pricing day
Students engage with investment banking and finance professionals from Raymond James and PFM Financial Advisors LLC. Luke Tandy ’22 (center) is a business administration major.

Furman’s Business Block students, other students from accounting, economics and Furman’s Investments Club, faculty, administrators, financial advisors, underwriters and more gathered as the public auction for 30-year municipal bonds went live.

It’s the first time Furman has opened its financing process to the campus community.

“Students were able to see the market – the demand for the bonds, and this is something students rarely, if ever, have the chance to witness on college campuses,” said Susan Maddux, Furman vice president of finance and administration.

But that demand for bonds could have been derailed by “the headlines of the day,” she added.

white woman in white jacket, Susan Maddux
Susan Maddux, vice president of finance and administration

Fortunately for Furman and investors, it was a good day. No bombshell news on or leading up to the day materialized. Investors such as Vanguard, Fidelity and others saw Furman and higher education as a safe bet, and the markets stable enough to purchase $67.3 million in premium bonds with a 4% coupon.

Prior to the bond pricing event, the students attended a Tuesday morning bond basics session led by Raymond James, underwriter for the bond issue, and PFM, Furman’s financial advisor. Another session was held Tuesday afternoon to accommodate additional students. Both sessions in “Bonds 101” unpacked bonds and how they are priced.

A bond can be viewed as an IOU between the borrower, in this case Furman, and the investors, which can be individual investors and institutional ones such as Fidelity, BlackRock and Vanguard. When bonds are issued, the borrower promises to repay the total par (or face) value of the offering, and vouches to pay investors semiannual interest until the bonds mature. Bonds represent a low cost of capital for the borrower while delivering low-risk, tax-exempt fixed income to investors.

But, as the students learned during the event, just how much risk investors will assume is the key to understanding how bonds will be priced and the interest Furman will be obligated to pay over the life of the bonds.

Months ahead of the actual bond release date, much of the legwork had already taken place among Furman administration, PFM and Raymond James to ensure Furman put its best foot forward on pricing day and prove to investors that the university can make good on its obligation.

Chief among the tasks for the bond issuance team was securing a favorable credit rating, which is critical in determining how much Furman will pay in servicing the debt. The rating – a report card of sorts – reflects how risky the bond or borrower is.

Independent agencies such as Moody’s Investors Service, Standard & Poor’s, and Fitch Ratings set the ratings. Furman came to market with an A1 Moody’s rating and a rating of AA- from Fitch, both deemed strong investment grade categories.

Among other factors, Maddux attributes Furman’s high rating to its financial stability and its ability to bounce back from COVID-19 challenges. “We have managed COVID well,” she said. “We have been in-person since August of 2020 and haven’t missed a beat since.”

Unique learning experience

white woman at podium, Elizabeth Davis
Furman President Elizabeth Davis

Furman President Elizabeth Davis joined the 40-plus students and others at the bond pricing event. “Through this hands-on experience,” she said, “our students learned how this works – the tradeoffs, market instability, inflation, and how all of this affects investors – applying what they have learned in the classroom in a real-world, high-stakes situation that was truly unique. Learning experiences like this help to prepare our students for any career they might pursue.”

Mark Bettner, visiting professor of accounting, agreed. “This was a real experiential link for students to the outside world – not a textbook thing,” he said. “Students were able to be right there in the thick of things, being exposed to some pretty interesting and, at times, proprietary information.”

Bettner said bonds provide an important lesson in how and why fixed-income investments can and do have volatility in their value in the marketplace.

“The bond buying and selling process is really fundamental to understanding how a range of other things are valued, from pension fund valuations to common stock, preferred stock valuations, and so on,” he added. “It was a great lab experiment for students.”

Students took copious notes, lobbed questions and engaged with representatives of Raymond James, PFM, Furman Trustee David Hauser ’73 (former CFO of Duke Energy), and others as orders for Furman bonds came in during an hour-and-a-half window.

“This is how it really works,” Hauser said. “I’ve done this a lot of times, and this is the negotiation every time. You go out on a price, and you usually are able to come in a little bit, and that’s the negotiation. So, I think it’s wonderful that the opportunity was provided, and the number of questions and comments we got from students I thought was great.”

woman in mask with dark hair, Julia Blakely '23
Julia Blakely ’23, business administration

Julia Blakely ’23, a business administration major from Boston, said, “I thought it was really fascinating to get a look behind the scenes – something we wouldn’t normally see as students. Being able to see how the funds are generated to build new buildings, and learning about basis points and credit spreads was super interesting. I walked into this knowing little about how the bond pricing was going to go. And I came away feeling like I learned a lot about the whole process, and I want to learn more.”

“I really appreciate seeing the real-world application of what we’re learning in class,” said business administration major Christian King ’23 of Dallas. “I think through these case studies or through examples, it’s a much better way to learn the information. I’m really appreciative that Furman let us sit in on this, review this deal and see how it all comes about.”

Besides getting an inside-the-ropes view on Furman’s financing strategy, business administration major Jared Tuzon ’23 of Charleston was impressed by the available career paths, which Raymond James and PFM representatives shared.

“This event showed how many occupations there are in public finance,” he said. “Going into business, you really are focused on your major and not so much on employment at the beginning. And it’s interesting to see how many different career options there are in just this one major.”

Addressing students via Zoom, Furman Trustee Kevin Byrne ’91, CEO of The University Financing Foundation, closed the big day by thanking PFM and Raymond James representatives.

“These people can make a lot more money doing other things, but they chose to be here with you to bring this unique educational experience,” he said. “This was a true reflection of faculty, staff and students working together, which is the essence of The Furman Advantage. You got to see something today that a lot of people don’t get to see. We owe PFM and Raymond James a great debt of gratitude.”

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white man in suit, Chuck Ellingsworth, room with students

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