Squeezed UNC Sets Deals

The University of North Carolina system expects to issue $151.4 million of pool revenue bonds for six state universities next week as the state’s difficult budget decisions may affect tuition rates.

A retail pricing period is scheduled for Monday with an institutional sale on Tuesday.

The university system will issue $24.6 million of Series A bonds for East Carolina, $41.1 million of Series B-1 bonds to be split between Appalachian State and UNC Charlotte, $29.7 million of Series B-2 bonds for UNC Greensboro, and $33.2 million of Series C bonds to be split between UNC Asheville and UNC Wilmington. The deal also includes $22.9 million of Series D Build America Bonds for UNC Wilmington.

The Series A bonds are rated Aa3 by Moody’s Investors Service and AA-minus by Standard & Poor’s. The Series B bonds are rated Aa3 by Moody’s.

The Series C bonds are expected to be insured by Assured Guaranty Corp. and have an A2 underlying rating from Moody’s. The Series D bonds are rated A2 by Moody’s.

To cope with a $4.4 billion budget shortfall for fiscal 2011, North ­Carolina’s General Assembly approved an 8% tuition increase that would be applied to the general fund. The UNC system has offered a counter-proposal that would allow the universities to keep more of the tuition increases.

But the outcome is moot for investors interested in next week’s sale because the revenue stream for the bonds excludes tuition and state funding, according to Walter Goldsmith, a vice president with First Southwest Co., the financial adviser on the deal.

The tuition negotiations “from a sheer bondholder perspective are not really an impact because these bonds are not payable from tuition,” Goldsmith said. Housing, dining, and athletic revenues are applied to these bonds, among other sources, he said.

Still, state funding provides about half of each university’s revenue, according to analysts.

North Carolina is “uncommonly supportive” of its public universities for both operating and capital needs, said analyst Dennis M. Gephardt.

“We don’t think that is going to change, but it is something to keep an eye on” as the state makes difficult budget choices, he said.

Wells Fargo Securities LLC is the lead underwriter. BB&T Capital Markets, Jackson Securities, and Morgan Keegan & Co. are co-managers. Womble Carlyle Sandridge & Rice PLLC is bond counsel. Parker Poe Adams & Bernstein LLP is representing the underwriters.

For reprint and licensing requests for this article, click here.
Higher education bonds
MORE FROM BOND BUYER