DALLAS — Amid tightening finances, the Arizona Board of Regents will issue $34 million of taxable and tax-exempt bonds this week as part of the state “Speed” stimulus program.
The bonds, which will finance improvements at Arizona State University, will include $31 million of taxable Build America Bonds and a $3.2 million tax-exempt Series B. The debt will be issued as fixed-rate bonds under the program called Stimulus Plan for Economic and Educational Development, or Speed. Principal repayment on the debt is scheduled to begin in fiscal year 2017, with ASU paying interest only during the first six years.
The university worked with financial adviser RBC Capital Markets in structuring its first deal under the Speed program. The deal is expected to go to market the week of July 19 with Wells Fargo Securities Inc. as senior manager.
Created last year by HB 2211, Speed authorizes the board to issue up to $800 million of bonds backed by state lottery funds. The law requires that lottery funds be deposited into the “Speed Fund” up to a maximum of 80% of total annual debt-service payments on outstanding bonds.
However, there is no guarantee that any lottery money will be available in a given year because other programs also have a claim to the revenue. The state recently issued $449 million of state lottery revenue bonds that have a first lien on revenues. Proceeds of that sale were used to help close Arizona’s state budget shortfall.
If there is an insufficient amount of lottery monies to pay debt service on the Speed bonds, the debt is secured by a lien on university revenues subordinate to the university’s system revenue bonds. The Speed bonds are rated AA-minus by Standard & Poor’s with a negative outlook.
“The negative outlook on both the Speed and system revenue bonds reflects our view of the increasing debt level of the university (both direct and indirect), subsequent high debt burden with additional upcoming debt plans within the outlook period, low levels of financial resources for the rating category, and continued stress from the state both from appropriations and timely payment of those appropriations,” wrote analyst Jessica Matsumori.
“We expect demand for ASU will remain strong and that the university’s financial operations will remain balanced on a full accrual basis, despite anticipated cuts in state funding and following the conclusion of federal stimulus monies.”
Moody’s Investors Service issued a slightly lower A1 rating but kept a stable outlook. ASU suffered a 13.8% cut in state appropriations for operations in fiscal 2009, and the fiscal 2010 appropriation is 4% lower than the amount received in 2009. During fiscal 2009 and 2010, the state delayed certain monthly general fund appropriations to the public universities.