New York’s large public university systems plan to market back-to-back bond issues this week with two tax-exempt offerings totaling $323.7 million.
The Dormitory Authority of the State of New York plans to market $197 million of refunding bonds on behalf of the City University of New York, with retail sales beginning Monday followed by institutional pricing on Tuesday. On Wednesday, DASNY plans to offer retail investors $126.7 million of new-money bonds on behalf of the State University of New York with institutional pricing following on Thursday.
Citi and JPMorgan will lead manage the CUNY deal, which will have maturities out to 2027.
DASNY estimates the refunding will generate present-value savings of $28 million.
Nixon Peabody LLP is bond counsel.
Loop Capital Markets LLC will lead manage the SUNY deal, which will have term and serial maturities of up to 30 years. Lamont Financial Services is financial adviser and Hiscock & Barclay LLP is bond counsel.
The CUNY system is made up of 13 senior colleges and six community colleges in New York City.
The institutions served 258,029 degree-credit students in the spring 2010 semester and 257,819 continuing and professional education students during the 2009-10 academic year, according to the preliminary official statement.
The system’s operating budget in fiscal 2010 was $2.58 billion, of which 34.6% came from tuition and fees, with the balance coming from state and city aid as well as grants, endowments, and other sources.
DASNY has issued $3.89 billion of bonds for CUNY that are outstanding, according to the POS.
The bonds are being offered on CUNY’s fifth resolution and are secured by state and city funding, subject to appropriations. If the state and city fail to pay appropriated funds to cover debt service, the state comptroller is authorized to intercept state operating aid for the university as well as state aid to New York City.
The state appropriated $1.25 billion of operating aid for CUNY in fiscal 2011.
Fitch Ratings rates the CUNY bonds AA-minus with a stable outlook, citing the role played by the state in supporting the system.
The rating is linked to the state’s double-A general obligation rating. Standard & Poor’s rates them AA-minus with a stable outlook and Moody’s Investors Service rates the credit an equivalent Aa3.
The SUNY dormitory lease revenue bonds Series 2010A will finance dormitory facilities and other capital projects.
Enrollment at SUNY’s 64 campuses has increased since the recession began, jumping to 218,528 in fall 2008 compared to 213,269 in 2007, according to the POS. Projected enrollment is slightly lower this fall, compared to last year when is was 221,505, a year-over-year drop of 698.
“We have seen particularly strong demand for the public universities during the recession because families and students are increasingly price-sensitive and public universities offer a lower-cost option,” said Moody’s analyst Kimberly Tuby. “SUNY is seeing that as well.”
“The student demand is very strong, but also their retention is particularly strong for a large public university system,” she said. The system retains 83% of first-time, full-time students.
The bonds are secured by a pledge of dormitory revenues as well as SUNY revenues. The system’s 74,216 revenue-producing beds had a 96.7% occupancy rate in fall 2009.
Gross revenues from dormitory facilities provide five times debt-service coverage, according to Moody’s.
“We’re looking closely at the occupancy and the operations of the dormitory system but at the end of the day … the obligations to pay rentals under the lease agreement is a general obligation of SUNY,” Tuby said. “You’re really looking at the full picture above and beyond just how the dormitory facilities are operating.”
The SUNY system has demographic challenges because the state’s population is not growing as fast as some other parts of the country and because other public and private universities in the Northeast compete for students, Tuby said. The system also expects a 4% budget cut next year, she said.
State appropriations make up 37% of SUNY’s $8.3 billion adjusted operating revenue, according to Moody’s.
Student charges are the second-biggest component at 22%, followed by health-care related revenue derived from SUNY’s three medical centers at 21%, and grants and contracts at 17%.
Moody’s rates the SUNY bonds Aa2 and Fitch rates them AA-minus, both with stables.
Standard & Poor’s rates outstanding SUNY dormitory lease revenue bonds AA-minus with a stable outlook.
Moody’s looked favorably on Gov. David Paterson’s proposal this year to allow SUNY and CUNY more independent tuition-setting powers, but the plan was not enacted.
CUNY and SUNY have played an important role in economic development policies in New York and their future is a subject in the November gubernatorial elections.
Attorney General Andrew Cuomo, the Democratic candidate, has called for a greater state role in promoting partnerships between the universities and industry to turn research into new business.
He also called for the state to support new business incubators on college campuses and to provide tax credits for technology companies’ internship programs.
Businessman Carl Paladino, the Republican candidate, similarly wants to use the universities’ research programs and facilities to foster economic development, a campaign spokesman said.
Paladino would also cut back on administration expenses and increase tuition for non-resident students, the spokesman said.
Elizabeth Lynam, deputy research director at the Citizens Budget Commission, a fiscal watchdog organization, said that the state’s public universities “can serve as a center for public-private partnerships, for the development of new technologies that can be leveraged to grow the economy.”
“Human capital is an essential ingredient of any economic development strategy and SUNY and CUNY are at the heart of that,” she said.
“It’s a very large system and there are substantial resources in that system, so it will undoubtedly play an important part in any future governor’s effort to spark the economy in New York.”
Lynam said the model for the state is the Albany NanoTech Complex, an 800,000-square-foot complex where major technology firms — including IBM, Intel, and Sematech — conduct research and development in partnership with the College of Nanoscale Science and Engineering of the University at Albany.
“That’s been very successful so if we can use that template and develop centers of excellence using SUNY and CUNY as a centerpiece of that effort, then any future economic development efforts would be more successful,” Lynam said.
