By Joe Mysak

Bloomberg News

Dec. 16 (Bloomberg)

The Citadel, one of four U.S. military colleges, will sell $25 million in municipal revenue bonds during the first week in January to help pay for new barracks.

Unfashionable as it may be to talk about such places, at least in the same circles where parents sign up consultants to get their kindergartners into Harvard and Yale, military colleges are institutions ``dedicated to the principle of the citizen- soldier,'' in the words of a 1991 congressional resolution commending their survival.

Dedicated to turning out graduates who are ``prepared to serve their country in a military role during time of war or national peril,'' according to the resolution, the other military colleges are Norwich University in Vermont, founded in 1819, the Virginia Military Institute, founded in 1839, and North Georgia College (1873). The Citadel, located in Charleston, South Carolina, was founded in 1842.

In its mission statement, the Citadel mentions old-fashioned virtues that somehow seem pretty current: duty, honor, morality, accountability, integrity.

The school is selling its bonds the old way, too, using the auction, or competitive market.

``We think that's where we'll get the best interest rate,'' said Curtice E. Holland, vice president for finance and business affairs at the school.

History, Rating

The sale, originally scheduled for this week, was moved to January to take advantage of a less-crowded calendar of bond sales, affording it ``the maximum amount of exposure,'' said Greg F. Fawcett of Banc of America in Charlotte, North Carolina, the school's financial adviser.

The Citadel's history and rating, A1 from Moody's Investors Service, "give investors comfort,'' Fawcett said. ``It has a track record.''

It will be interesting to see how the school does at its competitive sale. Wall Street wants the entire market to go negotiated, and a casual observer might conclude that issuers rated below the top triple-A don't stand a chance. Less than 20 percent of the municipal market will use auction sale this year.

First Casualty

The Citadel's corps of cadets is just under 2,000. About 40 percent come from the state of South Carolina, which appropriates $4,795 per student to the school.

It's not all Gunnery 101. In fact, the curriculum is just like that of any other college, with the Reserve Officer Training Corps departments handling the military science part of it.

Between 35 percent and 40 percent of the Citadel's graduates go on to accept commissions in the military. The first soldier killed in action in the Iraq War was a 2001 Citadel graduate, Lieutenant Shane Childers of the Marines, who was leading his platoon.

``That brought it all home,'' Holland said. There are more than 100 Citadel graduates currently on duty in Afghanistan and Iraq, he said.

Women Admitted

Until high school student Shannon Faulkner stormed the Citadel in 1993, winning admission to the school by leaving out all references to her gender and thus touching off years of litigation, the school was more celebrated for its role in the Civil War and for featuring in the novels of alumnus Pat Conroy, class of 1967.

During the war, cadets fired the first shots at a supply ship coming to the relief of Fort Sumter and later fought in an additional seven engagements, all commemorated with battle streamers on their flag (along with a streamer for service to the Confederacy). The school closed in 1865, when the Union Army occupied Charleston, and didn't reopen until 1882.

Just how far is the Shannon Faulkner episode in the school's past? A woman cadet is now pictured on the school's Web site.

``The College began admitting women in 1997 after a well- publicized legal battle,'' said Moody's in its report on the school, ``and female students now make up approximately 5 percent of the cadet corps.''

Demand is Key

For municipal bond investors, the big question is how to evaluate this kind of bond.

It's pretty special. In assigning the Citadel an A1 credit rating, Moody's said the school enjoyed a ``solid market position within the public military college niche,'' which is very small indeed.

The Citadel is a small, elite school, with an endowment of about $200 million, and all that history, that ``track record,'' as financial adviser Fawcett put it.

The only real challenge ahead for the school, said Moody's, is state aid, which fell from 27 percent of operating revenue in 2002 to 21 percent in fiscal 2004.

Of course at the time, the state was reacting to the economic slowdown and was protecting its own triple-A rating by cutting spending, which is what responsible states do when the tax revenue isn't coming in.

It all comes down to demand. The Citadel may not be Harvard or Yale, but there are people who want to go there. Which is why when the Citadel sells its bonds on Jan. 6, 2005, bond buyers probably won't demand much more in terms of yield than they do from issuers rated triple-A.

Top of page Articles in this edition