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WVU bond shows power of guarantee

When West Virginia University’s athletic department awarded its multimedia rights to IMG College last year, officials pointed to the guaranteed revenue stream the contract provided as a key benefit of the deal.

While other companies projected comparable revenue over the next decade, IMG was the company that guaranteed the most money.

The contract binds IMG to pay a minimum of $86.5 million over the next 12 years.

School officials have said the contract, with its annual guaranteed payouts, would be able to help the athletic department finance improvements at athletic facilities in the coming years.

Last week, WVU made good on that promise.

The athletic department released details of an expected $75 million bond package that the WVU Board of Governors will consider approving this week.

The bond will fund a host of construction projects across the school’s Evansdale campus, including construction of a new football team room at Milan Puskar Stadium; renovations of the stadiums entrance, concession and restroom areas; WVU Coliseum renovations and other facility improvements that could be announced in the future.

But the bond would not have happened — or at least nowhere the amount being proposed — had WVU not inked its deal with North Carolina-based IMG.

While the university will get additional money from its move to the Big 12 Conference, it’s the $6 to $8 million in additional guaranteed revenue from IMG between now and 2025 that helped beef up the package.

And with the way bond financing works, that guarantee is sure to help keep financing and interest costs down on the project.

Remember when the state tried to finance construction of the final 14.6-mile stretch of U.S. 35 with toll bonds?

One of the reasons financing that project was so difficult — and eventually fell apart — was because the state could only rely on projections of potential traffic patterns and toll collections.

It had no guarantee it would collect the money it thought it would over the lifetime of the toll project.

The lack of a guarantee meant the state would have to pay bond buyers more money in interest to finance the project. Even when the U.S. 35 project was financially feasible, financing costs on the project topped $18 million.

All it took was a few months of interest rate fluctuations in the bond market to render the project financially infeasible.

West Virginia University won’t have that problem.

Guaranteed money from IMG plus expected revenue from Big 12 Conference deals should reassure bond buyers about the university’s projected revenue stream going forward, and the university will reap the reward of financing the projects with lower interest rates.

(Which, thanks to the Federal Reserve, are still near historic lows.)

Had WVU wanted to finance the projects without a guaranteed revenue stream, it would likely have not been able to borrow much money, and what it could borrow, would be paid for at higher interest rates.

In short, that would have meant fewer projects at a higher cost.

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