DALLAS – The University of Arkansas will price one of the state's largest bond deals this year with $115 million of taxable and tax-exempt debt to expand and improve the Razorbacks' football stadium.
The $25 million of tax-exempt Series A and $90 million of taxable Series B revenue bonds are scheduled to price Wednesday, according to Tim O'Donnell, vice chancellor for finance and administration.
Bo Bittle, lead banker on the deal at book runner Stephens Inc., said this issue is one of the largest in the state this year.
"We don't have that many $100 million deals," Bittle said.
The university issued $109 million March 7 that included new money for smaller projects and refunding.
"We were extremely pleased with how that came out," O'Donnell said. "We saved a significant sum of money. One of the reasons we wanted to get going now on this deal is that the interest rates are still low."
Bittle expects to see retail and institutional demand in Arkansas, where investors will benefit from the state tax-exemption, even on the federally taxable series.
The bonds will face a good deal of competition in a week where volume is expected to reach $13 billion, far higher than the $7.5 billion weekly average.
"The last three weeks have seen a slight uptick in yields," Bittle said. "Nothing dramatic – less than 10 basis points. I think a lot of issuers are trying to get to market before the presidential election."
After the Federal Reserve Open Market Committee maintained interest rates at current levels in September, Fed Chair Janet Yellen indicated that an interest-rate hike in December is possible.
Both series carry Aa2 ratings from Moody's Investors Service with a stable outlook.
"The stable outlook incorporates expectations that the University of Arkansas system will continue to experience solid student demand and maintain healthy system-wide wealth," wrote Moody's analyst Dennis M. Gephardt.
After the bond sale for the stadium at the main Fayetteville, Ark., campus, the university will issue $20 million of student-fee revenue refunding bonds for the Fort Smith campus. Raymond James is book runner on that deal, with Crews & Associates as co-manager.
The Fayetteville stadium bonds will partially finance a $160 million expansion of the Donald W. Reynolds Razorback Stadium in an midst of a stadium "arms race" among football teams in the highest level of the National Collegiate Athletic Association. Some of the nation's largest and most sophisticated stadiums are in the Southeastern Conference, which includes Arkansas.
In 2015, Arkansas' SEC rival Texas A&M completed a $485 million expansion and renovation of Kyle Field, making it the largest in the conference with 102,000 seats.
LSU and Mississippi State recently unveiled end zone expansions.
Missouri opened a new upper deck and Kentucky is completing a two-year project that will decrease capacity while building a new press box and luxury seating facilities.
Arkansas officials said no university funds will be required to complete the project.
The bonds are expected to be repaid through pledged athletic department and student fee revenues, but the debt is a general obligation of the University of Arkansas Board of Trustees.
"This project is about improving the gameday experience for every Razorback fan," said Razorbacks athletics director Jeff Long. "The addition of a north end zone will connect fans throughout the stadium. Renovated suite and club areas will provide a variety of options for fans.
"Reducing prices in the upper level of the stadium and providing a lower priced standing room only ticket will give every Arkansan an opportunity to cheer on the Hogs."
The last major update to the 77-year-old stadium was in 2001 when an upper deck was added to the east side, along with club seats and suites at the south end.
Work on the stadium is expected to begin after the current season ends in November and is expected to be complete by the start of the 2018 season.
The north end zone addition will include new suites, loge boxes, club seats, and club areas. The east and west concourses will connect to allow flow of patrons around the stadium, as well as provide new concessions and restrooms. Additional and expanded entrances are designed to improve flow. A new locker room, training room, and pre/post game support rooms will be added for the football team.
New elevators will be installed at the northeast and northwest corners to service the east and west suites, club areas, and upper level seating. Existing suites and club areas will be renovated and updated. A new video board will be added at the south end of the stadium. Security and safety systems will also be improved.
Other sources of funding are primarily philanthropic or advance commitments for premium seating.
"Strong operating performance and revenue growth prospects aid the affordability of the additional athletic revenue debt," Gephardt wrote. "Favorably, revenue growth for the athletic department has boosted the department's operating performance allowing it to fund capital investments from operations as well as increasing the likelihood of solid debt service coverage from net revenues."
The athletic revenue system currently has little debt with rapid amortization, according to Gephardt. On a pro forma basis, including the new $120 million of debt, 46% of debt will be retired in the next decade, he said.
With enrollment of 26,000, the Fayetteville campus has the bulk of the University of Arkansas System's 51,000 students.
"The system's broad flexible reserves will continue to provide sound support for both debt and operations, although immediately available liquidity is much more limited," Gephardt wrote.
Fiscal year 2015 spendable cash and investments exceeded $1 billion, according to Moody's, while total cash and investments registered $2.3 billion as of June 30, 2015.
"Philanthropy has fueled the increasing wealth, with notable gains in support of the Fayetteville campus over the last decade," Gephardt wrote.
The university's long-term endowment pool had a negative 1.5% return in the 12-month period ending June 30.
"We expect future borrowing plans will remain manageable, although limited state capital support will prompt borrowing for ongoing capital needs," Gephardt wrote.
The co-senior manager on this deal is Crews & Associates, with JPMorgan and Raymond James as co-managers.
Public Financial Management Inc. senior managing consultant Josh McCoy is financial advisor for the university.
The law firm of Mitchell, Williams, Selig, Gates & Woodyard is bond counsel.
The Series A tax-exempts reach final maturity from 2034 through 2036, and the Series B bonds mature from 2018 through 2034.
