DALLAS — The Texas Tech University System will get the Southwest bond market rolling next month with $198 million of revenue bonds after a lean year for higher education.
New money for Texas higher ed in 2011 amounted to less than a third of the $2.3 billion issued in the full year of 2010, according to Thomson Reuters. Combined new-money and refunding issues in Texas higher ed were about $1.4 billion this year, down from $3.5 billion in 2010.
Texas Tech’s first issue of 2012 will come in two tranches. The $170.6 million Series A will be fixed-rate tax-exempt revenue bonds, while the $27.7 million Series B will be taxable. The Series B bonds are currently scheduled to price the first week of January, with the tax-exempts coming the following week.
The negotiated deal is led by RBC Capital Markets and Wells Fargo Securities as co-senior managers. The underwriting team includes Estrada Hinojosa & Co., Morgan Keegan & Co., JPMorgan and Stephens Inc. as co-managers. Fulbright & Jaworski serves as bond counsel, with First Southwest Co. as financial advisor.
The Texas Tech deal is expected to come about the same time as a $120 million new-money and refunding deal from the Baptist Church-affiliated Baylor University in Waco. Texas A&M University will also be pricing $65 million of commercial paper notes on Jan. 5.
Otherwise, the first two weeks of the year will feature only a few small issues from Texas, according to the current calendar from Thomson Reuters.
Fitch Ratings has revised its outlook on the AA-rated bonds to positive from stable. Fitch also affirmed the AA rating on $442.72 million of outstanding revenue finance system refunding and improvement bonds. The university system’s $150 million commercial paper program retained its top F-1-plus rating.
“The positive outlook reflects the system’s ability to consistently improve its operating performance despite financial pressures impacting revenues as well as expenditures, adequate balance-sheet resources and strong demand at all three campuses,” wrote Fitch analyst Angela Guerrero.
The refunding portion of the upcoming deal will take out about $80 million of the Series 2002 and 2003 bonds.
Ratings from Standard & Poor’s are pending. The system has not applied for a Moody’s Investors Service rating. The outstanding parity bonds have a long-term underlying rating from Aa2 by Moody’s and AA from S&P, according to the preliminary official statement.
According to Fitch, events that could trigger an upgrade for the Texas Tech system include continued growth in resources, particularly those affecting operating expenses.
Success in meeting progressive benchmarks toward the ultimate goal of achieving Tier 1 status, and becoming a beneficiary of the National Research University Fund, could also provide a boost.
The 2012 bonds will finance construction and equipping of a new college of business administration building on the Lubbock campus, the construction and equipping of a new residential housing and dining facilities, various athletic facility improvements, the refunding of certain outstanding revenue financing system bonds, and associated costs of issuance.
In addition to the projects to be financed with the proceeds of the Series 2012A bonds, Texas Tech is planning $330 million of other projects as part of its five-year capital plan.
The university’s estimate of upcoming bond projects does not include those that might be financed with tuition revenue bonds that would be authorized in the future by the state Legislature. The university has no outstanding tuition-revenue bond authorizations.
Founded in 1923, Texas Tech University’s original campus in Lubbock is now the second-largest in acreage in the state. In 1996, Tech’s Board of Regents created the Texas Tech University System. It now includes a medical school and Angelo State University in San Angelo. A recent addition to the medical school includes a campus in El Paso.
To manage growing enrollment and expanding research, the university has invested more than $548 million in new construction since 2000. It has also received more than $65.9 million in private donations. In April 2009, the Texas Legislature passed a bill that will increase state funding for seven public universities, including Tech.
Texas Tech is classified by the state as an “emerging research university” and is among the schools that will receive additional state funding for advancement toward Tier 1 status.
Three funds — the Research University Development Fund, the Texas Research Incentive Program, and the National Research University Benchmark Fund — were established to provide $500 million in grants and matching funds during fiscal years 2010 and 2011.
According to a June 30 report from S&P, U.S. public colleges and universities face a number of challenges despite the economy’s gradual recovery.
“These include continued state funding pressures, the loss of federal stimulus dollars in fiscal 2012, and increased competition for students,” S&P noted. “This is compounded by an uneven demographic picture from region to region and tuition increases.”
A lengthy recovery with limited growth could result in distress for some institutions, according to S&P analysts.
“We expect this recovery to be characterized by reduced dependence on state appropriations, changing socioeconomic and demographic patterns, and increased competition,” the report said.
“However, the recent recession created a proving ground of sorts for colleges and universities, with many institutions demonstrating surprising resilience. This is reflected in the average credit rating on public colleges and universities remaining unchanged at A-plus with a stable outlook.”
Only three public universities — the University of Virginia, the University of Texas System, and the University of Michigan — have AAA ratings from S&P.
