CHICAGO - The Regents of the University of Minnesota will sell $141 million of general obligation bonds Thursday to finance construction of a new ambulatory care center.
The university will own the facility but it will be occupied by Fairview Health Services and a not-for-profit whose members include university and Fairview physicians. Fairview and the university are closely linked under a 1997 affiliation agreement that runs through 2026 and can be extended.
The 30-year fixed-rate sale matures serially with a term bond for $41 million in 2044, the university's director of debt management Carole Fleck said in a roadshow posted with the deal's offering statement. The bonds are secured by the university's full faith and credit although it has no taxing power.
RBC Capital Markets is the senior manager with Public Financial Management Inc. advising the university and Dorsey & Whitney LLP as bond counsel.
Ahead of the sale, Moody's Investors Service affirmed the school's Aa1 rating and Standard & Poor's affirmed its AA rating. Both assign a stable outlook. The school has $1.3 billion of debt including GO backed bonds, special purpose revenue bonds, and commercial paper.
The school operates five campuses in the state with expected enrollment this fall of 67,200. It closed out fiscal 2013 with $5.5 billion of total assets and $1.9 billion of liabilities and a $2.1 billion endowment. About 34.6 % of operating revenues come from student fees and tuition. About 52% of non-operating revenues come from state appropriations and are slated to rise by 5.8% in 2014 and 2.5% in 2015.
Standard & Poor's analyst Henry Henderson said the rating reflects the agency's "view of the university's strong enterprise and financial profile, including financial resource ratios that remain about average for the rating category, relative to both debt and expenses, and solid demand metrics."
Moody's said the university's credit benefits strong student and research market positions, growing financial resources and liquidity, and positive operating cash flow that provide ample debt service coverage.
The strengths are offset by "expected additional debt issuance, challenging state demographics and constrained state operating funding for operations." The school also faces challenges in growing its research funding due to the federal funding environment and heightened competition.
Standard & Poor's earlier this year signaled that Fairview could win an upgrade over the next two years when it revised its outlook to positive on the system's A rating.
The revised positive recognizes "Fairview's improved governance and management and strengthened ties with the University of Minnesota and its associated physician organization," said Standard & Poor's credit analyst Ken Rodgers.
