The Pennsylvania Higher Educational Facilities Authority is scheduled to sell $75 million of bonds in separate offerings for two Philadelphia universities on Tuesday.
Both deals will be priced by Bank of America Merrill Lynch.
The PHEFA, an instrumentality of Pennsylvania that issues bonds for colleges and universities, will sell $45 million of revenue bonds for Thomas Jefferson University, a private, not-for-profit teaching and research institution located in downtown Philadelphia.
The bonds were downgraded by Standard & Poor’s ahead of the sale to A-plus from AA-minus, based on an assessment of its low financial resources, which are below other double-A-rated peer institutions.
The university’s resources are further pressured by the recent issuance of additional debt, coupled with a weaker operating performance in fiscal 2010 and 2011, analysts said.
“A negative outlook or lower rating could be possible during the next one to two years if the balance sheet or operations were to deteriorate,” said analyst Emily Avila. “We, however, believe a higher rating is unlikely within the next two years because financial resource ratios are commensurate with the A rating category.”
Moody’s Investors Service assigned an A1, citing the university’s established market position as a provider of health science academic programs with strong student demand, an adequate financial resource cushion and consistently favorable operating performance.
Both assign stable outlooks.
Proceeds from Tuesday’s bond sale will be used to refund all or a portion of the university’s Series 2002 revenue bonds, of which approximately $10 million are outstanding.
Proceeds will also finance cost of acquisition, construction and development of various capital assets and other capital improvements.
The authority will loan the proceeds to the university, which has pledged a lien on, and security interest in, tuition revenue.
The bonds will be structured as serial, maturing in 2014 through 2032, and term, maturing in 2037 and 2042.
Some maturities will be subject to early redemption.
Ballard Spahr LLP is bond counsel.
On Tuesday, the PHEFA is also scheduled to sell $31 million of revenue bonds for the University of the Sciences in Philadelphia, a private, nonprofit corporation providing education in the health professions and natural sciences.
The PHEFA will loan the proceeds to USciences, which will be secured by a general obligation of the university.
Proceeds will go toward financing the construction of a new, approximately 55,000-square-foot addition to the University’s Science and Technology Center, which will house the new physician assistant and speech pathology programs.
Proceeds will also help finance the expansion of the university’s central utility plant, and certain other capital improvements and renovations.
The addition is expected to be completed in winter of 2014, with pre-construction work in process and construction scheduled for later in the year, according to Joseph Trainer, senior vice president for finance.
Moody’s has assigned the bonds an A3 with a stable outlook based on healthy net tuition revenue, prudent financial management practices and a healthy balance sheet.
Challenges include elevated operating leverage, donor support below typical A-rated peers, and limited revenue diversity, analysts said.
Fitch Ratings gave the bonds an A-minus, with a stable outlook, citing a sufficient amount of financial flexibility, but a high debt burden.
The bonds will mature in 2042, and will be subject to early redemption.
Bond counsel is Fox Rothschild LLP and financial advisor is Fairmount Capital Advisors.
