Regional News

100-Year Old Texas State University System Still Growing With $115M Sale

DALLAS — The Texas State University System next week plans to issue $114.5 million of revenue financing system bonds as Texas legislators consider another $320 million for the nine-campus system in its centennial year.

The upcoming deal is scheduled to price through negotiation the week of April 25, said Roland Smith, TSUS' vice chancellor for finance.

Barclays Capital is senior manager. Co-managers are Fidelity Capital Markets, Morgan Keegan & Co., Piper Jaffray & Co., Jefferies & Co., Siebert Brandford Shank & Co., and Wells Fargo. First Southwest Co. is financial adviser and McCall, Parkhurst & Horton is bond counsel.

University issues in Texas so far this year have been few and small compared to previous years. One reason is the uncertainty surrounding proposed state legislation.

The TSUS was last in the market in August, refinancing $100 million of construction bonds in a deal that saved nearly $8.5 million.

Total interest cost for the transaction came to 2.787%, officials said.

"With interest rates below 3%, we decided to move aggressively and refinance the system's bond debt," chancellor Brian McCall said about the August deal.

Smith said that while "the market's not as good as it was eight months ago, construction costs have come down a bit."

Since the beginning of the year, debt issuance around the country has fallen dramatically due to the loss of federally subsidized Build America Bonds and declining investor interest in long-term debt.

The upcoming issue is expected to appeal to risk-averse investors and institutions looking for a strong tax-exempt credit.

Fitch Ratings has confirmed its AA rating on the bonds. The rating from Moody's Investors Service is expected later this week. Standard & Poor's is not rating the deal but last rated TSUS revenue bonds AA-minus, while Moody's conferred its Aa2. The outlooks remain stable.

Fitch analyst Eric Kim credits the system's "consistent positive operating margin driven by steady enrollment growth and sound financial management practices, and a satisfactory financial cushion."

However, Kim considers the TSUS' outstanding parity debt of $690.1 million "moderately high" amid extensive capital plans.

Like other major public university systems, the TSUS is bracing for a lean year as lawmakers look for places to cut spending.

"Substantial cuts anticipated for the 2012-2013 biennium could pressure the system's financial performance," Kim said.

Created in 1911, the TSUS is the oldest university system in Texas. The flagship Texas State University in San Marcos, the largest campus, accounted for 45.3% of the system's 76,290 students in fall 2010. Enrollment grew at all nine TSUS institutions to record levels in fall 2010, and officials anticipate additional growth in fall 2011.

"Throughout our system, enrollment is growing at a faster clip than Texas' population," McCall said.

TSUS' newest campus is the Round Rock Higher Education Campus just north of Austin, where the TSUS Board of Regents has its headquarters. The Round Rock campus serves several universities, including Texas State.

Begun in 1996 with 15 temporary buildings in a lot adjacent to Westwood High School, the campus grew on 101 acres donated by the Avery family of Round Rock.

The campus' first permanent building, begun in 2004, was named for the family and provided 125,000 square feet of classroom, lab, and office space. As more academic buildings are added, the Avery Building will remain the main administration building for the campus.

SB 272 would provide up to $207 million for the Round Rock campus, along with funding for other university systems.

The bill, filed by Senate Higher Education Committee chairwoman Judith Zaffirini, D-Laredo, would authorize the issuance of tuition-backed revenue bonds to fund 74 construction projects at 53 of the state's higher education institutions.

Other bond provisions for the TSUS include $56.7 million for a new music building and $70 million for a new science and engineering building.

Tuition revenue bonds provide funds to buy, build, or improve buildings and other infrastructure for universities, medical schools, and other institutions of higher education.

"The economy is recovering slowly, interest rates and construction costs are relatively low, and Texas university enrollments are spiraling upward," Zaffirini said in a statement.

"If the Legislature waits until 2013 or waits for the economy to improve, we risk losing these savings and pushing back completing these critical facilities until at least 2017. Texas cannot afford to wait that long."

As for operations, the TSUS plans to offset budget reductions with a mix of tuition and fee increases, and expenditure cuts.

"The system's schools appear to have pricing flexibility, given their affordability compared to other public universities in the state," Fitch's Kim said. "Management expects to contain costs through targeted salary and hiring freezes, as widespread layoffs are not currently anticipated."

State appropriations for tuition revenue-bond debt service are not expected to be cut in the next biennial budget.

While the bonds are secured by the revenue finance system pledge, which includes all legally available, unencumbered funds and balances of the TSUS, Texas has historically provided annual appropriations covering tuition revenue bond debt service.

About half of the projects in the system's $1.3 billion adopted capital improvement plan for 2011-1016 are tuition revenue bond projects, according to Kim.

"Should the legislature not approve TRB appropriations for those new initiatives. TSUS would likely delay them until approval could be sought," he said.



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