DALLAS — The University of Colorado System plans to expand its campuses with $150 million of taxable and tax exempt revenue bonds this week.
Senior manager RBC Capital Markets is expected to price the deal through negotiation Wednesday with Stifel and Loop Capital Markets as co-managers.
Todd Saliman, chief financial officer for the CU System, said that upheaval in Washington over the government shutdown and threat of impending default on U.S. Treasury debt will not prevent the issue from coming to market.
"We're always worried about what type of news can affect the market," Saliman said. "But the CU credit has always been well received. And we believe this time it will be too."
A $10 million refunding portion will probably not be issued because of market conditions, Saliman said.
"We always like to keep the opportunity open," Saliman said. "But we will not issue that unless there is a major change in the market."
A former Colorado lawmaker, Saliman worked in the cabinets of two governors and worked with a private government affairs company in Colorado before joining CU.
Bill Dougherty, principal at BD Advisors, is working with Stephanie Chichester of North Slope Capital as financial advisors.
"Bill has been with the university as FA for a very long time," Saliman said. "Stephanie has been working with us for the past four years. We like historical knowledge."
Chichester said the threat of a federal default will become more of a factor for issuers during the week of Oct. 17 as Republican House members consider whether to raise the debt ceiling.
"We just had a conference call, and the CU deal is setting up nicely for Wednesday," she said.
Attorney David Scott with the Denver firm of Hogan & Lovells serves as bond counsel. Scott has worked as bond counsel for major project financings, ranging from the Denver Convention Center to the E-470 toll road on the eastern perimeter of the Denver metropolitan area. He has also represented several colleges and universities in connection with revenue-based, lease purchase, and structured financings.
With maturities extending 30 years, the system revenue bonds carry ratings of Aa2 from Moody's Investors Service and AA-plus from Fitch Ratings. Outlooks are stable. Standard & Poor's does not rate the deal.
"CU's rating could be adversely affected if its leverage increases at a greater pace than currently expected, or if there is deterioration in the university's enrollment or research profile, which are the core market strengths supporting favorable operations," wrote Moody's analysts Mary Cooney and Brad Spielman in their Sept. 25 report on the deal.
CU's leverage has increased sharply over the past five years, with $1.5 billion of pro-forma debt, nearly double FY 2008 levels, according to Moody's. The system anticipates borrowing an additional $155 million in 2014.
The CU system receives minimal support from the state of Colorado with uncertainty in future funding receipts, Moody's said; state funding is only 4% of operating revenues.
"I know there have been concerns about how higher education funding has dwindled in recent years," Saliman said. "But we get such a small portion of our funding from the state that we have adapted to that over the last five years."
From this issue, CU is allocating $35 million for expansion of two science buildings on the flagship Boulder campus, $78 million for a recreation center and new housing at the Colorado Springs campus and $28.3 million for expansion of the Anschutz medical campus in Aurora, a suburb on Denver's eastern boundary.
Bonds for a new building on the Anschutz campus will be taxable because the building is shared with private enterprises.
The Anschutz campus, formerly Fitzsimons Army Hospital, has experienced major redevelopment over the past decade as home to the University of Colorado Health Sciences Center.
Total investment in the Anschutz Campus, not counting a $1 billion Veterans Affairs hospital expected to open in 2015, has surpassed $2 billion, according to Moody's.
"It boggles the mind," Saliman said. "They've gone beyond everything they thought they were going to get done. Everything around it is also being redeveloped."
Earlier this year, the city of Aurora approved a $25 million tax subsidy to build a conference center hotel at the Anschutz campus.
CU's Colorado Springs campus is its fastest growing, with demand for housing so great that the university has had to sublet nearby apartment complexes, Saliman said.
Systemwide, the CU System enrolled 57,592 in 2012, with 44,700 full-time equivalent students. Since 2008, enrollment is up 6.3% and 3.7% total and full-time equivalent, respectively.
"CU's fairly diverse revenue base continues to drive its track record of generally positive operations," noted Fitch analyst Colin Walsh, adding that "CU's percentage of revenues derived from state support is among the lowest of all Fitch-rated public colleges and universities."
The university has an estimated $218 million of projects currently planned through fiscal 2017, including various academic and student-life related projects at its Boulder and Colorado Springs campuses. Additional athletics-related projects may be added to the capital plan, due in part to CU's recent switch to the NCAA's Pac-12 Conference, though timing and funding details have not yet been decided.
"Fitch expects CU's manageable capital plans and somewhat front-loaded pro forma debt service schedule to keep the university's debt burden at a moderate level going forward," Walsh wrote.
The Boulder campus was affected by the recent flooding in Colorado, causing water damage to several buildings. The campus shut down for four days and several students were evacuated. No serious injuries were reported and there was no reported damage at CU's other campuses.
The university is still assessing the situation, and while no cost estimate has been reported, administrators expect the damage to be fully covered by insurance.