DALLAS — The University of Texas System could see savings in excess of 10% on a $250 million advance refunding of revenue bonds planned for Nov. 12, according to Terry Hull, associate vice chancellor for finance.
"The exact bonds to be refunded will be determined based on market conditions at pricing," Hull said. "Present value savings are expected to exceed 10% of the refunded bonds."
Morgan Stanley is book runner on this deal with six co-managers. Managing director Eric Wild is the lead banker. Wild has been with Morgan Stanley since 1987 and specializes in higher education, with clients including Harvard, Ohio State University and the University of Southern California, among others.
UT is planning to issue the bonds in a stepped coupon structure, with those maturing in 2019 at 2.25%. Maturities of 2024 would carry 3.25% coupons, while those maturing in 2029 would bear 4.5%. Coupons for any bonds beyond that have not been set.
With ratings of triple-A from Standard & Poor's, Moody's Investors Service and Fitch Ratings, the bonds are expected to attract institutional investors with a low tolerance for risk. The deal comes to market on one of the lighter recent weeks in volume, though issuers are crowding the year-end calendar with refunding deals.
Hull described the market as "relatively volatile since mid-October."
This has also been a volatile year for the UT System, with political uproar at the system Board of Regents and the legislative censure of one regent, Wallace Hall.
Hall, an appointee of Gov. Rick Perry, has been accused of conducting a "witch hunt" against UT President Bill Powers by requesting scores of documents involving the operations of the university. Under pressure from Hall, Powers negotiated a plan to resign next year.
Moody's Investors Service issued a special report in August, calling the power struggle a negative credit factor for the UT System.
Despite that warning, Moody's maintained its stable outlook on the system's triple-A rating. Moody's rates $7.9 billion of the UT System's debt.
"The system has a relatively conservative debt portfolio for a higher education organization of its size," analyst Karen Kedem said. "Of the system's nearly $8 billion of pro-forma debt, approximately 70% is in a fixed rate mode, which increases to 86% including all variable rate bonds that are swapped to fixed rate."
Although the refunding bonds are issued under UT's Revenue Finance System, they are general obligation bonds in reality, according to Moody's.
The bonds are secured by a pledge of a broad pledge of system-wide revenues that include state appropriations, tuitions and fees totalling $7.8 billion. About $1 billion of RFS bonds also receive debt service reimbursement from the state, under the Tuition Revenue Bond program.
