Rendering shows proposed design of the University of Colorado at Denver Wellness Center to be financed through an upcoming issue of bonds.

DALLAS – The University of Colorado, buoyed by legislation to improve bondholders' security, is preparing to issue $168 million of revenue and refunding bonds.

"We're waiting for the governor to sign Senate Bill 121," said CU Treasurer Dan J. Wilson. "It changes the pledge of assets from a 10% cap to 100% of tuition revenue."

CU is aiming for the third week of April to price the bonds, Wilson said.

Two series will include $41.5 million of new money.

"The refunding portion will be whatever makes sense based on the market that day," Wilson said. "That could be as high as $126 million."

Stifel is book runner with co-senior manager RBC Capital Markets. Stifel's managing partner Mike Imhoff is lead banker.

Stephanie Chichester, president of North Slope Capital Advisors, is financial advisor.

With the expectation that Gov. John Hickenlooper will sign SB 121, Moody's Investors Service revised its outlook on the Aa2 credit to positive from stable.

"The broader pledge of revenues for bondholders is credit positive, with a sizeable increase in CU's pledged revenues to $1.1 billion in FY 2015 from $293 million in 2014," Moody's analyst Mary Kay Cooney wrote. "The broader pledge would meet over eight times maximum annual debt service coverage compared to three times under the prior rule."

Fitch Ratings maintained its AA-plus rating with a stable outlook.

"An enhanced security pledge will not change Fitch's rating for CU, which already recognizes a broad pledge and overall strong capacity to meet its financial obligations," Fitch analyst Karen Wagner wrote.

The 10% cap on pledged revenues came from a 2003 bill that found few defenders, with no opponents to lifting it in the Senate and only 10 of the House's 64 members.

"It started to become a negative," Wilson said. "So we tried to have it removed because it doesn't make any sense to have it."

Because they are considered "enterprises," Colorado's colleges and universities are exempt from the 1992 Taxpayer Bill of Rights (TABOR) amendment that limits how much revenue and state and local governments can retain.

Under TABOR, state and local governments cannot raise tax rates and cannot spend revenues collected under existing tax rates without voter approval if revenues grow faster than the rate of inflation and population growth.

Policy analysts call Colorado's TABOR the most restrictive tax and spending limitation in the country.

To circumvent the TABOR restrictions, the state in 2004 adopted a policy that finances its higher education enterprise principally through vouchers rather than through the more traditional approach of making direct appropriations to institutions.

The 2004 legislation created the College Opportunity Fund, which established a stipend available to Colorado residents to use to offset their in-state tuition costs at the public higher education institution of their choice.

The legislation included fee-for-service contracts to pay institutions to fulfill a set of specific state needs not covered by the stipend.

Also created were performance contracts negotiated between each institution and the Colorado Commission on Higher Education to ensure accountability while allowing for greater institutional autonomy and deregulation.

A 2010 study of the funding mechanism by the Western Interstate Commission for Higher Education, found that the cumbersome financing scheme's only real success was shielding the state universities from the TABOR provisions.

"Otherwise, COF has failed to live up to its original intentions to improve access and impose a more conscious market orientation on institutions, while making public policies relating to higher education less transparent overall," the study found.

More recently, Moody's called state support for the CU system "uncommonly low" at 5% in fiscal year 2015.

"The state did increase overall funding to CU by 14% from FY 2014-16 and provided capital funding for the first time in over a decade," Cooney said. "This trend is not expected to continue, with flat funding expected for FY 2017."

CU has about $1.5 billion of outstanding university enterprise revenue bonds on par with the upcoming issue, according to Fitch.

Proceeds of the Series 2016B-1 bonds will be used to refund all or portions of the Series 2011A bonds, as well as pay costs of issuance.

About $33.7 million of the Series A bonds will go toward a Wellness Center at University of Colorado at Denver. The Colorado Springs campus will get $4 million for a surface parking lot and $4 million for the Visual and Performing Arts Center.

The decision to build the Wellness Center at the downtown Denver campus took an unusual route, with student government proposing the activity center and convincingly winning a student voter referendum to raise fees for the debt.

It is envisioned as recreational center and a place for students to relax or study between classes or after school. With construction beginning this year, completion is expected in late 2017.

The Wellness Center will be one of the few buildings built solely for UCD students on the Auraria Campus, which also houses Metropolitan State University and Denver Community College. The campus began as a commuter college but is expanding with student residences and other amenities.

Moody's expects student demand to remain sound across CU's four campuses due to its wide array of academic programs and strong research activity. Enrollment for fall 2015 came to more than 61,000 students.

The flagship Boulder campus accounts for about 51% of the headcount.

CU at Colorado Springs is the university's fastest growing campus, with 19% of enrollment.

The remaining 30% is divided between the Anschutz Medical Center campus in Aurora and the UC Denver campus.

CU's net tuition per student of $18,992 is well above Moody's Aa2 median of $9,193, Cooney wrote. About 27% of the enrollment is non-resident, with most out-of-staters favoring the Boulder campus.

As treasurer, Wilson supervises the banking activity for all campuses, as well as debt management and investment strategy.

Wilson succeeded Don Eldhart, who retired in July 2015 after a 29-year career.

Wilson came to CU from the University Corporation for Atmospheric Research, the Boulder-based consortium of more than 100 colleges and universities focused on research and training in atmospheric and Earth sciences.

As director of treasury operations, he managed finances for the nonprofit organization. He also oversaw UCAR's contributory retirement plan.

"The Board of Regents is pleased to have Dan Wilson as the CU System's next treasurer," Kyle Hybl, chairman of the CU Board of Regents said in a statement when Wilson was appointed. "He brings a wealth of experiences that will help him to effectively oversee the university's banking, treasury and debt management systems."

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