Cal State Selling $408M

Standard & Poor’s revised the outlook on California State University’s A-plus-rated revenue bonds to positive from stable ahead of a $408 million issue scheduled to come to market Wednesday. The rating and outlook apply to about $2.5 billion of outstanding debt.

Standard & Poor’s improved its outlook on the “expectation that the system will sustain its financial performance even during a period of state funding cuts,” said analyst Mary Peloquin-Dodd.

The agency said Cal State — the nation’s largest university system, with 433,000 students — benefits from a diversifying revenue stream, solid student demand, strong financial management, and a funding agreement with the California governor that gives it “relative certainty” of annual state funding levels.

Moody’s Investors Service last week affirmed its Aa3 rating on the university system’s bonds.

Cal State plans to issue $378 million of new money to finance construction, including about $190 million for dormitories and $100 million for parking structures, said Colleen Nickles, assistant vice chancellor for finance. The 23-campus university system will also refund about $30 million of auxiliary unit debt to bring it under the umbrella of the system-wide revenue bond program. The debt is backed by a pledge of various auxiliary revenues and fees, including student union, housing, parking, health center, and continuing education income.

The fixed-rate deal will include both serial and term bonds maturing over 30 years, according to Nickles. She said Cal State has received bids for insurance from Assured Guaranty and Financial Security Assurance Inc. but has not decided whether it will insure any or all of the offering.

Lehman Brothers will lead a syndicate of 10 banks underwriting the deal. KNN Public Finance is the financial adviser and Orrick, Herrington & Sutcliffe LLP is bond counsel.

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