DALLAS - The University of Texas System plans to close on the sale of $218 million of Permanent University Fund bonds on Aug. 25, officials said after the gilt-edged deal met strong demand in the negotiated market.
With managing director Jim Costello as lead banker, JPMorgan led a nine-member syndicate that brought yields of 0.71% on 4% coupons in 2017 and 3.65% on 3.5% coupons in 2035.
"The market appears favorable for high-grade issuers," said Terry Hull, associate vice chancellor for finance at the UT System.
The July 21 pricing came on the heaviest week of the summer, with total issuance expected to fall just shy of $9 billion compared to a 2015 average of $7.6 billion, according to Municipal Market Data.
The syndicate was able to bump prices 1 to 4 basis points in spots. Bonds bearing 5% coupons in 2020 were bumped 2 basis points to 1.42%, according to MMD, while 5% coupons s in 2025 were left unchanged at 2.48%.
The bonds, backed by Texas' $17.8 billion Permanent University Fund, carried triple-A ratings with stable outlooks.
The rating "reflects the robust security provided to bondholders, with ultimate access to the total value of the PUF," said Moody's analyst Karen Kedem. "As of June 30, 2015, the PUF value is estimated at $17.8 billion compared to $2.2 billion of PUF debt outstanding."
Permanent University Fund bonds are secured by a first lien and pledge of the UT Systems' two-thirds interest in distributions from the PUF. The fund serving the UT and Texas A&M systems derives from investment returns and mineral income on 2.1 million acres of state land that produces oil and natural gas.
The new bonds will take out commercial paper used to finance projects across the system's campuses.
Although UT considers the deal a refunding, Standard & Poor's analyst Jessica Matsumori wrote that S&P analysts consider it an increase in debt.
"No additional PUF debt is anticipated during the outlook period, although the system may contemplate a revenue finance system transaction to convert outstanding CP in that program," she said.
"The total PUF debt remains below the constitutional limit and because the strong coverage continues, the PUF has the capacity to absorb the series 2015B debt," she said.
For 2015, the UT System plans to issue a total of $420 million of long-term bonds. That total is lower than calendar 2014 due to lower refunding volume this year, Hull said.
UT System plans to begin issuing tuition revenue bonds for its 15 campuses from a nearly $900 million authorization next summer at the earliest, Hull said. For the first time in nearly a decade, lawmakers in the 2015 session approved TRBs of more than $3.1 billion for colleges and universities across the state.
