DALLAS - The University of Houston System next week will competitively sell the first offering from a two-part deal that is expected to total as much as $194.5 million to finance capital improvements to campuses and refund outstanding debt.
Officials will bring $139.5 million of Series 2002A tax-exempt consolidated revenue bonds to market on Sept. 17 and another $55 million of Series 2002B consolidated revenue refunding bonds to market on or after Oct. 22.
Both deals will be sold through competitive bid via i-Deal Parity. Drew Masterson, a senior vice president at First Southwest Co., is the system's financial adviser. Andrews & Kurth LLP and Epstein, Becker Green, Wickliff & Hall PC serve as its co-bond counsel. Wells Fargo will serve as paying agent for the deal.
The proceeds of the Series 2002A bonds will finance a new science and engineering building and renovation of the library at the University of Houston, construction of a classroom building at UH-Downtown, renovation of facilities at UH-Victoria, and construction of a student services building at UH-Clear Lake.
About $105 million of the debt service for the Series 2002A bonds will be paid by annual state appropriations, with the library project at the system's main campus repaid solely from system revenues. However, officials pointed out that all available revenues are pledged to the deal.
The October refunding is scheduled to accommodate a current refunding with the deal closing in mid-November, officials said. Although the system's financial officers and bond team are watching the market to determine exactly what outstanding debt the deal will refund, they predict now that they'll take out most of the system's outstanding Series 1993 bonds and some of its outstanding Series 1995 bonds.
They say they have a present value savings target of 5%, but with market rates as they have been, that number is currently around 8%. The original debt was sold with interest rates ranging from the high 5s to the low 6s, officials said.
Although insurance for the deal can be purchased at bidder's option, the deal has won strong ratings from Standard & Poor's, which affirmed its rating of AA-minus with a stable outlook, and Moody's Investors Service, which affirmed its Aa3 rating but upgraded the credit outlook to positive from stable.
According to a Moody's report written by analysts Susan Fitzgerald and Elizabeth Veasey, The system's financial resource base is quite healthy, although we expect additional growth over the medium term to potentially be more limited given weak investment returns and the negative impact of a weak economy on fund-raising. The system's total financial reserves at the end of FY 2002 approached $700 million, reflecting a 30% increase over the past five years.
The report, which was released yesterday, further stated that because Houston has strong demand for four-year and graduate degrees and local competition is limited largely to junior colleges that award only two-year degrees and private colleges and universities that serve a different student market, it's likely that the system's growth will remain strong.
The UH System has four campuses in the Houston area, with a combined full-time enrollment of nearly 40,000 students.
