DALLAS - The University of Colorado Board of Regents will finance significant expansion of its Front Range campuses with proceeds from a $142.6 million revenue bond issue this week.
The enterprise system revenue bonds scheduled for pricing Thursday are more than double last year's $63.8 million deal.
For Colorado investors, the bonds will offer a strong, double tax-exempt credit at fixed rates through 2035.
"We're actually seeing pretty good interest," said Mike Imhoff, managing director at lead underwriter Stifel, Nicolaus & Co. "There hasn't been a lot of Colorado supply this year."
Co-managers on the deal will be Citi, RBC Capital Markets Corp., and Morgan Stanley. BD Advisors of Denver serves as financial adviser, with Hogan & Hartson LLP as bond counsel.
The bonds carry ratings of AA-minus from Standard & Poor's and Aa3 from Moody's Investors Service.
"The rating reflects the university's position as Colorado's flagship university system, solid student demand, and historically balanced operating performance," said Standard & Poor's credit analyst Carlotta Mills. "In addition, the university has good revenue diversity and good liquidity."
The university is considering insurance for the bonds, but has not decided whether the extra cost would be worthwhile, Imhoff said.
Although Colorado's state income tax creates strong interest in state-issued debt, this week's deal will not include a retail order period, though retail orders will have priority, according to Imhoff. Other buyers are typically trust departments, money managers, mutual funds, and large casualty insurers, he said.
"I think rates in general are pretty good right now," Imhoff said. "This allows CU to put a number of projects together under one finance package."
Proceeds of the Series 2008A bonds will be used to finance a number of projects at the CU campuses in Boulder, Colorado Springs, and Denver. Plans call for a Center for Community and Visual Arts building on the Boulder campus, an engineering building on the Colorado Springs campus, and the purchase of a building for the business school on the Denver campus.
With little room on the Boulder campus for expansion, the university razed an existing building to make room for the visual arts center.
Because of the limited space in Boulder, plans call for Colorado Springs to become the main campus by 2050. In 2003, the state Legislature revised the role of the Colorado Springs campus and mission to remove geographic and program restrictions. In 2005, the regents approved a seven-year plan that calls for the university to add to its base of 7,650 students, 347 faculty, and 254 staff. The 2006-2012 plan calls for growth to 9,100 students.
In addition to the Boulder, Denver, and Colorado Springs campuses, CU is in the process of developing the Anschutz Medical Campus at the site of the former Fitzsimons Army Hospital in Aurora, a major suburb east of Denver.
Total enrollment at all four locations is stable, increasing about 1% a year, with a system-wide fall 2007 headcount of 52,834.
Boulder is the largest of CU's campuses, with 29,461 students, or about 56% of total enrollment. The regents' goal is to keep enrollment at the Boulder campus at about 30,000 and grow the other campuses.
The Colorado Springs campus, founded with the aid of Hewlett-Packard co-founder David Packard in 1965, was ranked ninth in the nation among public engineering schools by this year's U.S. News & World Report list of "America's Best Colleges."
The Colorado Springs campus was established when George T. Dwire sold the Cragmor Sanatorium property to the state for $1. The campus in the Austin Bluffs area sits in one of the highest sections of the city, known for its location at the base of Pikes Peak.
With its ambitious growth plans, future debt could affect the CU system's future liquidity and debt ratios, according to analysts. The capital plan calls for approximately $275 million of additional debt through 2012.
"Uncertainty in state capital appropriations could result in additional debt pressure on the university," according to Standard & Poor's. "Strong internal review of funded capital projects and a formal internal designation of revenue for debt service on each project remain a management strength of the CU system."
In June, the regents approved a $2.4 billion operating budget for fiscal year 2008-09 and selected regent Steve Bosley as its new chairman.
The university's budget had doubled over the past decade, which administrators called an indication that CU is a major economic engine for Colorado. A recent CU economic impact study showed the university has a $4.7 billion affect on the Colorado economy, despite decreased per-student state funding. In fiscal year 1999, the state contributed 16.7% of funding for the university's budget. Today, the state's contribution is 9.5%.
Since fiscal year 1999, the university's annual budget has risen from $1.2 billion to the current $2.4 billion, outpacing the growth of the state government's operating budget. By comparison, the state's annual budget has grown by 75% over the past decade, up from $10.5 billion in 1999 to $18.4 billion for fiscal year 2009.
CU's increased budget stems from greater awards of federal funding, an increase in other state contributions such as tobacco funds, tuition increases, and cost-cutting measures that include reduced consumption of electricity, water, paper, and other resources on all four campuses, officials said.
Major revenue sources for the three-campus, four-location system's budget include approximately $209.1 million in state funding from the College Opportunity Fund, $556.8 million in tuition and fees, and $342.5 million generated by auxiliary services such as residence and dining halls, parking, and recreation centers. Other sources include $632.6 million in restricted funding such as federal grants earmarked for specific research and $158 million in private donations.
Debt service for the revenue bonds comes from seven sources, including fees, and is not restricted by the state's Taxpayer Bill of Rights amendment because the revenues fall under the heading of an enterprise, officials said.
