DALLAS – Texas A&M University System will close April 12 on $417.1 million of taxable revenue finance system bonds that met strong demand after an upgrade to triple-A from Standard & Poor’s.
The bonds priced March 22 in two series of $91.5 million through senior co-managers Raymond James and Siebert, Brandford Shank & Co and $325.58 million through RBC Capital Markets and Goldman Sachs & Co. More than $90 million went toward refunding outstanding bonds.
Series A was oversubscribed nearly three times, while Series B was oversubscribed by a factor of 4.5, according to TAMUS treasurer Maria Robinson.
“The savings was higher than expected,” Robinson said.
On the long end of Series B, maturities of 2045 with 3% coupons yield 2.713%, a spread of 140 basis points against Treasuries. Both series can be called on May 15, 2026.
Series B was weighted toward the long end of the yield curve, with $164 million maturing between 2037 and 2045. The approximate average life of the Series B is 24.3 years.
Coming to market with triple-A ratings from Moody’s Investors Service and Standard & Poor’s broadened the appeal of the bonds, Robinson said.
Fitch Ratings retained its AA-plus rating after S&P upgraded its rating to AAA.
S&P’s upgrade was based on its new criteria for not-for-profit higher education, analysts said.
“We assessed the system's enterprise profile as extremely strong based on healthy enrollment and demand characteristics,” analysts Luke Gildner and Jessica Matsumori wrote in their March 22 report. “We also assessed the system's financial profile as extremely strong, with positive adjusted operating results and financial resources that are in line with the rating.”
After this deal, TAMUS has about $3.8 billion of debt outstanding, including revenue finance system and Permanent University Fund bonds, according to Fitch. PUF bonds are backed by a $17 billion permanent fund made up of investment of revenues from state lands.
Maximum annual debt service of $285 million will come in fiscal year 2017.
“This represented a moderately high 6.4% of 2015 operating revenue,” Fitch noted. “Fitch considers this debt burden manageable due to the conservative fixed rate and front-loaded debt structure.”
TAMUS consists of 11 academic institutions throughout Texas, seven research and service agencies, a health sciences center, and a new law school. The flagship campus in College Station has an enrollment of 56,500 students.
The system’s 2016 – 2020 capital improvement plan, includes planned debt issuance through both the RFS and separately secured PUF debt programs, as well as internally and gift funded projects.
“We are tracking refunding opportunities and the progress of our projects to determine the timing of the next bond issuance,” Robinson said.
The system is planning about $800 million of projects to be financed through tuition revenue bonds authorized by the 2015 Texas Legislature.
Debt to finance the TRB projects will likely be issued as CP or as long-term RFS debt over the next 2-4 years, according to Fitch. The first TRB-related debt issuance could come later this year.
The system is in the process of developing its new campus in the Rio Grande Valley city of McAllen.
The city of McAllen and Hidalgo County are offering the 100 acres for the new campus, plus $10 million towards a teaching facility and $8 million to install utilities and infrastructure.
Texas A&M will help to fund construction costs associated with building the teaching facility.
The goal is to open the facility by 2017 with 100 students, but expand to 750 students over five years.
