Louisiana State U. Pulls Deal That Had Already Priced

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BRADENTON, Fla. - Louisiana State University on Friday pulled a $114.5 million bond offering that had already priced two days earlier after investors withdrew from the deal when concerns emerged over the institution's financial status.

LSU said it postponed the deal that had already been trading because of what it called inaccurate media reports about whether the state's flagship university was in the process of filing a financial exigency plan. Such a filing means that a university's funds are insufficient to support its programs or personnel, and action would be required to reduce its budget.

In a statement, LSU said it is exploring "a wide range of contingency plans," because the state of Louisiana faces a $1.6 billion deficit.

"In light of recent events, LSU has decided to postpone the issuance of Series 2015 Auxiliary Revenue and Refunding Bonds in the amount of $114.5 million," the statement said. "Under the current circumstances and due to the continued unpredictably of our state budget, we believe this is the responsible thing to do, and we will reevaluate the offering once the state's financial picture becomes clearer."

Louisiana State Treasurer John Kennedy said that after discussions with a number of people, he was told that some national investors had pulled out of a large portion of the transaction "amid concerns over budget instability and state support for LSU and other Louisiana colleges and universities."

"My information, and it's not surprising, is that investors expressed a great deal of concern and less than robust appetite for the bonds," Kennedy said in an interview with The Bond Buyer Friday.

Kennedy said investors "see a state that is No. 1 in the country in the reduction of public support for higher education. They see a state that has raised its tuition 92%."

He also said the only budget on the table is from the administration of Gov. Bobby Jindal, which would cut higher education funding between $211 million and $700 million, much of which would be absorbed by LSU.

Kennedy said investors have also seen that in recent days that Jindal threatened to veto the entire state budget prepared by the Legislature if the spending plan relies on filling the gap by temporarily suspending tax credits, rebates, exemptions and deductions.

"Investors know everything," he said. "They see what's going on in our state."

The focus on Louisiana comes as the State Bond Commission prepares to competitively issue $335 million of general obligation bonds during the first week in May.

Kennedy said he plans to talk with investors before deciding whether he will pull that deal before pricing.

As for the developments involving LSU, Kennedy said the university did nothing wrong in revealing publicly that it is preparing for another round of state budget cuts.

Under bondholder risks, the preliminary offering statement for Wednesday's $114.5 million revenue and refunding bond transaction said that state support for LSU has declined by 54% in the last six years, and additional reductions are anticipated in fiscal 2016.

The POS also said the university is developing action plans that include avenues to increase revenues, seeking additional autonomy from the state, and decreasing expenses.

The bonds priced Wednesday had been released for trading. However, the transaction was removed from the Municipal Securities Rulemaking Board's EMMA filing system on Friday.

In rating the deal A1, Moody's Investors Service revised LSU's outlook to stable from positive, and said the change reflected its expectations of "relatively consistent cash flow performance, even as revenue experiences pressure."

Fitch Ratings rated the bonds AA-minus with a stable outlook.

Raymond James, Citi, and Wells Fargo Securities priced the LSU transaction.

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