DALLAS — The Texas A&M University System will offer one of the largest Southwest deals Tuesday in a lean municipal market.
The $129 million-revenue financing system bonds are expected to price competitively, with Series A sized at $22.5 million and Series B at $106.6 million. Series A will reach final maturity in 2021, while Series B will be paid off in 2041.
First Southwest Co. is serving as the A&M System’s financial adviser, with McCall Parkhurst & Horton serving as bond counsel. The bonds carry ratings of Aaa from Moody’s Investors Service and AA-plus from Standard & Poor’s and Fitch Ratings.
Jenny Maloney, a Moody’s analyst, wrote in a note that her agency’s rating “reflects the system’s strong market position with a sizable and growing student enrollment, consistently healthy operating performance, diverse $3.4 billion revenue base, and substantial resource flexibility with $1.86 billion of unrestricted financial resources at [fiscal year-end] 2010.”
About $97 million of the proceeds will be used for capital projects throughout the system. About $6 million of existing debt will be refunded.
Within the next five years, the system expects to issue around $476 million of revenue financing system debt and $320 million of debt backed by the Texas Permanent University Fund.
With the 2011 bonds, the A&M System will have $2.38 billion of debt outstanding, including $1.74 billion of revenue financing system debt and $641.9 million of PUF-backed debt.
About 36% of the RSF debt service is related to state-approved tuition revenue bond projects. The RFS security pledge includes unrestricted current fund revenue (including tuition and fees), sales and service revenue, gifts, unrestricted appropriations, and investment income.
The PUF gets income from state lands and is shared with the University of Texas System. As of Nov. 30, the A&M System’s share of the fund was $6.2 billion. Analysts say the PUF endowment, A&M’s status as one two top statewide systems, and a moderate debt burden of 5% of revenue, or $167 million of debt service per year, support the system’s high ratings.
Despite the recession, enrollment in the A&M System has grown 13.4% since 2006, to 95,459 students last fall.
“The system is poised to enjoy continued favorable enrollment trends for the foreseeable future, due to 19% projected growth in high-school graduates in Texas over the next decade and its position as the state’s land-grant university,” Maloney wrote. “The system’s flagship campus in College Station accounts for 44.7% of total FTE enrollment, with 42,700 students, and the freshman class at that campus is at a record high.”
But even the A&M and UT systems are facing financial hardships as the Texas Legislature deals with a $27 billion revenue shortfall — the gap between what state agencies say they need to keep pace with growth and available revenue.
Gov. Rick Perry has said that when the actual budget comes out, the actual shortfall will be closer to $15 billion. In a note published last week, Standard & Poor’s analyst Bianca Gaytan-Burrell maintained its stable outlook on the A&M System.
“At this time, we do not believe the system can improve its financial operations enough to warrant a positive rating action,” she wrote. “The rating could come under pressure if the system issues additional debt over the long term without a commensurate increase in financial resources and if the system does not produce strong operations on a full accrual basis.”
Maloney also cautioned that “issuance beyond this magnitude without commensurate growth in financial resources could place pressure on the current rating” for the system.
“Our concern is mitigated in part by the system’s relatively rapid repayment of debt, our expectation of continued balance sheet growth due to retained operating surpluses and philanthropic support, and management’s history of conservative fiscal practices,” she said.
