CHICAGO — The University of Missouri Board of Curators will enter the market next week with $60 million of refunding system facilities revenue bonds as itgrapples with a steeper-than-expected cut in state aid made by Gov. Jay Nixon earlier this month.
Bank of America Merrill Lynch is senior manager; Edward Jones and Stifel Nicolaus & Co. round out the underwriting team. Thompson Coburn LLP is bond counsel and Prager, Sealy & Co. LLC is financial adviser. The university will take retail orders on Tuesday and hold an institutional pricing on Wednesday, according to Prager.
Proceeds of the sale will refund debt from issues in 1998, 2001 and 2003, with net present-value savings of more than 10% expected. The bonds are secured by a first lien on system revenues that includes income from auxiliary activities as well as from the health system, mandatory student fees, and tuition and fees. Pledged revenues totaled $1 billion in fiscal 2010.
Ahead of the sale, Moody’s Investors Service affirmed the university’s Aa1 and top short-term marks assigned to $1.4 billion of debt. Standard & Poor’s also affirmed the flagship university system’s AA-plus and top short-term ratings.
The university’s rating “reflects its strong market position, with multiple campuses including a public comprehensive research university, diverse graduate and professional programs, and a large health care system serving a Aaa-rated state,” Moody’s wrote.
The university’s balance sheet has improved in recent years, with $2.2 billion of resources in fiscal 2010, including $1.16 billion that is unrestricted. That’s an important factor in assessing the school’s credit strength since it provides self-liquidity on its $224 million of variable-rate securities and faces exposure to health care sector risks because of its reliance on hospital revenue for 28% of its operating revenues.
The university’s credit is challenged by its rapid increase in debt levels, its management of a complex health care system that includes multiple hospitals, and declines in state funding coupled with the end of stimulus funds. The university received $72 million in federal stimulus aid in fiscal 2010 and $19 million in 2011.
Nixon originally proposed a 7% cut in aid to state universities and colleges, but the Missouri Legislature eased the reduction to 5.5% in the $23 billion budget it approved. When the governor signed the budget earlier this month, he overturned the Legislature’s action and cut even deeper into the University of Missouri’s funding levels by enacting an 8% reduction in aid.
Nixon cut an overall $172 million from the state budget using his withholding powers, citing in part the need to set aside funds to cover the state’s recovery expenses from weather-related disasters earlier in the spring. The cuts included $100 million in higher-education building projects that had already been in a holding pattern.
The governor targeted the university for a deeper 8.1% cut to penalize it for adopting an average 5.5% tuition hike. He had asked universities to limit hikes to 5%.
The university defended its increase.
“Our board’s action was based, in part, on a 10-year decline in state support during which more was being asked of the university,” interim president Stephen Owens said. “We are now educating 17,000 more students each year on less state support than we received in 2001.”
The school has floated several measures, such as capping internal financial aid and enacting a student surcharge, to deal with the cut in its $2.7 billion budget for fiscal 2012. About $393 million will come from state aid.
Standard & Poor’s said its stable outlook on the credit reflects expectations that the institution will weather a constrained state-appropriation environment, enrollment will remain steady, and health care operations will stay sound.
The university operates campuses in Columbia, Kansas City and St. Louis, and a technology campus in Rolla. It has 55,000 full-time students and net tuition per student was $8,600 in fiscal 2010.
