DALLAS - The Southwest Higher Education Authority will go to market Thursday with a $93.2 million offering of fixed-rate higher education refunding bonds in an advance refunding that is expected to yield significant interest rate savings for Dallas-based Southern Methodist University.
The Southwest Higher Education Authority Inc. is a 501(c)(3) issuer authorized by University Park, a small enclave surrounded by Dallas, to make loans to higher education entities for housing and educational facilities.
The expected interest rate savings will be icing on the cake for the private, religious-based university, which last month learned that a selection committee would focus on SMU as the site for the new President George W. Bush Presidential Library.
Although the library will be built with private funds, SMU has purchased land in its exclusive University Park neighborhood to both provide space for the potential library and to accommodate growth needs for the school itself.
Proceeds from this week's bond offering will take out select maturities from the university's Series 1999A and Series 2002 bonds.
"This is an advance refunding of portions of both issues," said John Vincent, the principal of John S. Vincent & Co., SMU's financial adviser. "This will be a conventional fixed-rate financing, with maturities beginning in 2007 and going through 2032."
Vincent said that while the deal is currently structured with serials, "we'll probably see some term bonds in the long end."
He added that because the success of the advance refunding is heavily dependent on the structure of the offering as well as this week's market, the deal could also include some select noncallable bonds and discount term bonds.
While the market was slightly off last week, the deal's savings remain strong, Vincent said.
"We lost a few basis points, but we are hoping to realize savings in excess of $4 million," he said, adding that in the present value savings would be between 4.5% and 5%. "Obviously, we'd like to stay in that range."
Lehman Brothers is the lead manager for the transaction, and Goldman, Sachs & Co., Morgan Keegan & Co., JPMorgan, and First Southwest Co. are co-managers.
Vinson & Elkins is the university's bond counsel and McCall, Parkhurst & Horton is underwriters' counsel. The Bank of New York Trust Co. is paying agent for the deal.
The bonds will go to market with ratings of AA-minus from Standard & Poor's and Aa3 from Moody's Investors Service. Both agencies maintain a stable outlook on the debt, which is not rated by Fitch Ratings.
"In addition, we'll have insurance for the lion's share of the issue," Vincent said, adding that Ambac Assurance Corp. would insure all but a few early maturities of the debt.
Southern Methodist University last sold debt in February 2006. That deal, an $84.7 million variable-rate revenue bond issue, was sold with a floating-to-fixed-rate forward swap.
On Nov. 1, 2005 the university locked in a fixed rate of 3.497% for the 30-year deal with Lehman Brothers, which is both underwriter and swap counterparty for the debt.
The variable-to-fixed rate swap is based on 67% the London Interbank Offered Rate. The Series 2006 variable-rate demand bonds are set in weekly mode.
"The swap has been excellent," Vincent said. "It's been very good for the university. Between the [Bond Market Association] rate and Libor, we've seen minimal basis cost. With BMA in the mid-60s in terms of percentage and Libor, we've been very happy with it."
The university does not expect to issue any additional debt in 2007, though a bond issue in the $100 million range could be on tap for 2008.
"The Board of Regents approved a plan to add a sophomore residency requirement," said Dana Gibson, the vice president for business and finance. "We will implement that when we can get the resident halls built."
The decision about the placement of the residence halls won't come until a site is selected for the Bush Library.
"We were told before Christmas that the library committee would focus on SMU for discussions moving forward," Gibson said, adding that the other finalists were Baylor University, a Baptist university in Waco, and the University of Dallas, a Catholic school. "While it's not absolutely a done deal, they are only going forward with SMU at this time," she said.
Gibson said the university has worked to acquire property for the landlocked school, and that while some of those efforts have focused on the library, much of the land purchases predated SMU's pursuit of it.
"When you're a landlocked school, it makes sense to purchase property when it becomes available," she said.
With the new sophomore residential requirement, the school must add beds to accommodate 1,500 students. In addition, more intramural fields are needed to serve the new SMU students.
The university's current enrollment is about 11,000, with 6,200 of that number enrolled in undergraduate programs. (c) 2007 The Bond Buyer and SourceMedia, Inc. All rights reserved. http://www.bondbuyer.com http://www.sourcemedia.com
