SAN FRANCISCO - California State University is planning to sell $744 million of revenue bonds in this week's largest municipal bond deal.
The university is planning to price the bonds on Thursday, following a retail order period scheduled for Wednesday, according to CSU's deputy assistant vice chancellor, Robert Eaton.
"Approximately $308 million of the proceeds will be used to fund new projects or pay off commercial paper that has been issued for new projects," Eaton said. "Most of these new projects are for student housing."
The balance of the proceeds — around $436 million — will be used to refund existing debt, which primarily includes the university's system wide revenue bonds, Eaton said.
University projects that will receive funding from the bond sale include Bakersfield Student Housing, San Jose Student Health and counseling Center, San Diego State University Zura Hall Renovation, and CSU, San Marcos Field House Expansion, according to the preliminary official statement.
CSU is an agency of California, with 23 campuses across the state, including locations in Los Angeles, San Francisco, San Diego, and Sacramento, and eight off-campus centers.
Its revenue bonds are limited obligations secured on a senior basis by pledged revenues, including the gross proceeds from various auxiliary revenues and mandatory student fees.
Pledged revenues totaled $1.47 billion for fiscal year 2013, up from $1.37 billion in the prior fiscal year. The bonds will be issued on parity with approximately $3.5 billion of CSU's outstanding systemwide revenue bonds.
Moody's Investors Service noted as a strength the university's "ample" financial resources, with $4.1 billion of total financial resources for 2013, and $2.8 billion in unrestricted monthly liquidity.
The agency assigned the new bonds a Aa2, also citing its very strong student demand as the nation's single largest four-year higher education system, improved state funding, and the demonstrated ability to manage operations.
"Offsetting challenges are continued material reliance on state appropriations from State of California for operating support and moderately high balance sheet leverage relative to comparably rated large systems or universities," analysts said.
The State of California is rated Aa3 with a stable outlook by Moody's.
Standard & Poor's rated the bonds a notch lower at AA-minus.
"The rating reflects the system's solid enterprise profile along with the prudent management team that, despite reductions and uncertainty in state appropriations in recent years, has managed through and maintained sufficient operating liquidity in the event of any cash flow volatility at the state level," Standard & Poor's said. "We believe that the stabilization of the state funding environment for the near future should help the university stabilize enrollment and improve financial resources in the long run."
Both rating agencies give stable outlooks, saying they expect continued student demand and well-managed operations.
The deal will be priced this week as term bonds, with maturities ranging from 2014 through 2044.
Barclays Capital is the lead underwriter. Orrick, Herrington & Sutcliffe is bond counsel and KNN Public Finance is financial advisor.
With a lower amount of new issues from the State of California this year and continued demand for California paper, market participants have said the deal will place easily and be bid on aggressively.
Volume totaled $19.62 billion as of June 30, down 27.8% from the same period in 2013, according to data provided by The Bond Buyer and Ipreo.
