DALLAS - The Houston Community College System will acquire two facilities it currently leases with proceeds from Wednesday's negotiated sale of $56.4 million of student fee revenue bonds.
The system will use some $36 million of the proceeds to defease long-tem leases on instructional facilities at the system's Alief campus and the Town & Country Mall campus. The remaining proceeds are allocated to the construction of a workforce building at the system's southeast campus, and renovations, improvements, and equipment for other system facilities.
The system will save money by acquiring the leased properties, said Karlos Allen of RBC Capital Markets Corp., the system's financial adviser.
"The debt service on the bonds will be less than the lease payments on those properties," Allen said.
"There are also some high fees associated with the leases, because those facilities are leased through a third party," he said. "Leasing the properties is not as liquid or as fluid as being in the bond market."
The college system will continue to operate in four instructional facilities under long-term leases, but those properties are owned by the Houston Community College System Public Facilities Corp. The system established the public facilities corporation in 2005.
The senior-lien bonds have received unenhanced ratings of A-plus from Standard & Poor's and Aa3 by Moody's Investors Service. The sale marks the system's eighth sale of debt secured by student fees, which include general fees, lab fees, out-of-district fees, and up to 25% of the system's tuition revenue.
The bonds will probably be insured, Allen said.
"The bonds have been qualified for insurance by Financial Security Assurance Inc., "Allen said. "It looks like we're going to use it."
Vinson & Elkins LLP is bond counsel for the district.
Siebert Brandford Shank & Co.and Merrill Lynch & Co. are co-senior managers. The underwriting team also includes Banc of America Securities LLC and JPMorgan.
With the sale, the system will have $563.8 million of outstanding long-term debt, including of $361.3 million of revenue bonds, $199.2 million of general obligation debt, and $33.9 million in capital leases. The capital lease liability will be eliminated by the bonds.
The district, which is the seventh-largest community college district in the country, serves some two million people in Harris and Fort Bend counties. Its taxing jurisdiction includes the Houston Independent School District, the Stafford Municipal School District, and Missouri City, but its service area also includes areas outside the taxing jurisdiction, including the Alief ISD, Katy ISD, North Forest ISD, and Spring Branch ISD.
Terrence Jackson, a spokesman for the community college system, said the expanded instructional space is needed to meet the demands of a growing number of students.
"We've seen tremendous growth over the past 10 years," Jackson said. "We now have almost 58,000 students, and we are the biggest player in the area when it comes to workforce education.
"This system serves a variety of industries, from fashion design to aviation technology to culinary arts," he said. "Our growth is based on a combination of technical education as well as traditional academics."
The system's taxing jurisdiction could be expanded in November to include the Alief ISD, which would add $10 billion of assessed value to the system's current tax base of $104 billion. In-jurisdiction students pay tuition of $53 per credit hour, while out-of-jurisdiction students pay $106 per credit hour.
A group in Alief is attempting to put a measure on the November ballot that would authorize its annexation by the college system. System trustees have not taken any action on the proposal at this point, Jackson said.
