DALLAS — A $250 million sale of Build America Bonds by the triple-A rated University of Texas System tops a light docket in the Lone Star state this holiday-shortened week.
Barclays Capital is senior manager for the negotiated sale of fixed-rate bonds, which are backed by the state’s Permanent University Fund. The system acts as its own financial adviser and McCall Parkhurst & Horton LLP is bond counsel. Proceeds will take out commercial paper notes.
This is the second BAB issue for UT, following June’s sale of $330 million of the taxable, federally subsidized debt as part of a $625 million issue of revenue bonds. BABs, which were introduced earlier this year as part of the federal stimulus package, offer issuers a 35% subsidy from the Treasury Department on their interest costs.
The bonds come to market with gilt-edged ratings from Fitch Ratings, Moody’s Investors Service, and Standard & Poor’s.
“The AAA rating continues to reflect the PUF’s vast, highly diversified investment holdings, which had a market value of $9.5 billion on July 31, 2009, and the expertise of the University of Texas Investment Management Company, which manages the financial assets comprising the PUF investment portfolio,” according to Fitch.
In February, the PUF’s market value ebbed to its lowest point, $8.3 billion, but it’s regained about 14%. On July 31 its market value was at about 81% of its peak year-end value of $11.7 billion on Aug. 31, 2007.
Following this sale, the university system, anchored by the flagship University of Texas at Austin, will have about $7.6 billion of debt outstanding. As of the last issue the ratio was 56% fixed rate to 44% in variable rate, according to Moody’s.
The system includes nine academic campuses and six medical schools with and roughly 84,000 employees and a total enrollment of more than 195,0000 students.
Elsewhere, Galveston County may price multiple tranches worth about $135 million as early as this week. The Gulf Coast county plans to offer $75 million of unlimited-tax road bonds in two series, $45 million of limited-tax building bonds in two series, and $15 million of limited-tax flood control bonds in two series, as well. All the debt is expected to come to market as BABs.
Louis Pauls & Co. is financial adviser to the county
Fitch assigned a AA rating to the bonds. Moody’s rates the county at Aa2 and affirmed the rating on $361 million of unlimited- and limited-tax debt outstanding, including the current issue.
Analysts said the county’s fiscal 2010 tax base fell 8.4% to $18.6 billion from a year earlier after average annual increases of 8.8% the prior five years.
The county was badly hit by Hurricane Ike last September and hurt further by lower valuations in the petrochemical industry tied largely to lower oil prices, according to analysts.
Moody’s said “damage sustained following the storm within the city of Galveston and the Bolivar Peninsula resulted in roughly $900 million in lost value.”
The Sabine Pass Independent School District plans to offer $5 million of general obligation bonds this week following an upgrade to AA-minus from A-minus from Standard & Poor’s.
RBC Capital Markets is lead manager for the negotiated sale.
Analyst said the upgrade reflects the district’s “continued local property-tax base expansion and maintenance of healthy financial reserves … further supported by sound financial performance and limited future capital needs.”
Upgrades indicate the financial strength of an issuer is improving and often lead to lower borrowing costs. Texas schools have been relying upon their underlying ratings when issuing bonds for most of this year because the state’s triple-A rated Permanent School Fund has been suspended.
The small school district along the Gulf Coast in the southeastern corner of Texas serves about 300 students.
Hurricane Ike caused significant damage to the district and officials will use proceeds from the bonds to rehabilitate the district’s gym and auditorium, according to analysts.
Sherman is bringing $3.5 million of tax and waterworks and sewer system revenue certificates of obligation to the competitive market today. The certificates are structured as serials maturing in 2010 through 2029. Insurance will be at bidder’s option.
Specialized Public Finance Corp. is financial adviser to the town, which is about 65 miles north of Dallas. Fulbright & Jaworski LLP is bond counsel.
Standard & Poor’s assigned a AA rating to the sale. Analysts said the ratings reflect the city’s steady property-tax base growth, established and diverse economic base, “historical maintenance of very strong reserves levels,” and good financial policies and practices.
