UMDNJ Is Back, Eyes Deal

The University of Medicine and Dentistry of New Jersey learned last week it is fully accredited and off probation — good news for the school as it plans to sell $750 million of debt to restructure floating-rate securities and generate new money for capital projects.

Structuring that deal has its challenges. A recent request for letters of credit for the transaction generated only one response from a liquidity provider. Those responses were due March 10.

Sheryl Stitt, spokeswoman for the New Jersey Educational Facilities Authority, which put out the LOC request, declined to identify the potential creditor and said that officials were still evaluating the upcoming sale and how best to move forward.

“We’re not exactly sure what direction it’s going to go in,” Stitt said. “It’s an ongoing process and there’s been no decision yet.”

UMDNJ’s $95 million of Series 2002B variable-rate bonds are insured by Ambac Assurance Corp. and carry extra liquidity from Bank of America. However, the bank can terminate that enhancement if Ambac falls below a double-A credit rating for more than 30 days, according to Moody’s Investors Service. Standard & Poor’s and Moody’s rate the bond insurer at triple-A, while Fitch Ratings assigns a AA rating. All three agencies give Ambac a negative outlook.

The university’s $34.2 million of Series 2001A auction-rate securities  could result from interest payments due to the recent volatility of the ARS market. MBIA Insurance Corp. insures UMDNJ’s auction-rate debt. All three credit agencies rate MBIA triple-A with a negative outlook.

Moody’s in early March placed its underlying Baa2 rating for the school on watch list for possible downgrade, citing balance sheets with higher than expected operating losses for the first half of fiscal 2008. Standard & Poor’s rates the university’s $668 million of outstanding debt BBB. Fitch does not rate the credit.

Since June 2006 until last week, the Middle States Commission on Higher Education, which allocates schools accreditations, had kept UMDNJ on probation due to fraudulent Medicaid reimbursements that were discovered in 2005, prompting investigations and two years of federal oversight. In December, U.S. attorney Christopher Christie agreed to end the federal monitoring process and allow the school to govern itself.

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