The University of California’s $1.35 billion Merced campus redevelopment PPP (UC Merced 2020) is the largest social infrastructure PPP transaction due to close in North America to date in 2016. It is also the largest higher education PPP due to close in the country this year.

Plenary Group, which is the private sponsor of the project, expects to close on the financing for UC Merced 2020 on 17 August 2016. Approximately $663 million of privately placed bonds priced on 8 August and will settle at financial close. The private placement will be the third such to close in the US PPP space this year.

The project's financing package comprises bonds, sponsor equity and university funds. The UC Merced 2020 construction package bundles together several on-campus assets bringing both time and price efficiencies to the procurement.

Private Placement

The $663 million of privately placed bonds were pre-committed at bid stage and backed by about five institutional investors, sources revealed to IJGlobal. The bonds are being underwritten by Goldman Sachs and TD securities. While final pricing for the privately placed bonds is confidential, a source close to the transaction said that at pricing "rates were lower than were anticipated at bid stage" backed by investor confidence in the university and the higher education sector. 

This is the third private placement being used to finance a PPP project in the US this year, after the City of West Lafayette's $123 million State Street redevelopment PPP, which reached financial close on 15 March 2016, and the $520 million Long Beach civic center PPP that closed in May 2016. All three transactions have Australian developer Plenary Group as lead sponsor. 

The University of California, Merced will make a $600 million contribution towards the project which will be made in the form of regents-issued tax-exempt revenue bonds as progress payments. These will be made pro-rata once the consortium has completed $150 million worth of ground work. The rest will come from the UC Merced’s own funds.

The private sector consortium will be paid in installments over the length of the 39-year contract, subject to the continued availability of the facilities for use at performance standards set within the contract. Upon expiration of the term, maintenance of the assets will be handed back to UC Merced. UC Merced will own the buildings and land at all times.

Bundled construction

The project entails the design, build, finance, operation and maintenance of new academic, research and student accommodation facilities at the University of California's Merced campus. The new facilities will be built within a 219-acre site that supports the existing campus and its 6,700 students.

The consortium expects to begin construction, which will be completed in two phases, in the third quarter of 2016. The first set of facilities is set to be available in the 2018-2019 academic year, with substantial completion of the project following in 2020. The new campus will have a capacity to hold 10,000 students.

The board of the University of California Regents gave its final approval for the project in July 2016. The board at the same time also reduced the scope of construction from 918,000 sqft to approximately 790,000 sqft.  

The private sector consortium comprises; Plenary Group (equity provider and financial arranger), Webcor Builders (lead contractor), Johnson Controls (operations, maintenance and renewal services provider) and Skidmore Owings & Merrill (lead campus planner).

UC Merced opened in September 2005, as the newest campus in the University of California system. Situated near Yosemite National Park, the campus significantly expands access to the UC system for students throughout the state, with a special mission to increase college-going rates among students in the San Joaquin Valley. 

Advisers

Ernst & Young is providing financial advice to the university, while Nossaman is acting as legal counsel. Jones Lang LaSalle and AECOM are joint technical advisers. 

Fasken is legal counsel and Plenary financial adviser to the consortium, respectively. Greenberg Traurig is legal counsel and BTY technical adviser to the lenders, respectively. Intech is the project's insurance adviser while Corality is model auditor.