The New Jersey Educational Facilities Authority yesterday approved nearly $740 million of borrowing for higher educational institutions, including a plan to restructure roughly $130 million of University of Medicine and Dentistry of New Jersey debt insured, in part, by Ambac Assurance Corp. and MBIA Insurance Corp.

UMDNJ officials plan in the fourth quarter to refund two series of floating-rate debt into fixed rate: Series 2001A auction-rate lease revenue certificates for $34 million with MBIA insurance, and Series 2002B variable-rate bonds for $95 million with Ambac insurance. Recent downgrades of the two monolines prompted UMDNJ and the authority to seek to refinance the debt, yet officials will issue the bonds after the university has completed its latest financial audit, according to NJEFA's executive director, Roger Anderson.

Morgan Stanley is senior manager on the deal. Gibbons PC is bond counsel and Acacia Financial Group Inc. is the financial adviser.

Current plans include refinancing the Series 2001A lease certificates into variable-rate demand bonds with a letter of credit from Bank of America NA and also refunding the Series 2002B bonds into fixed-rate debt or put bonds, depending on market conditions, Anderson said.

While the Series 2002B bonds have additional support via extra liquidity from Bank of America, the bank can terminate that enhancement if Ambac's rating from Moody's Investors Service falls below a double-A credit rating for more than 30 days, Ambac carries AA and Aa3 ratings from Standard & Poor's and Moody's, respectively, both with a negative outlook.

MBIA has been downgraded as well. Moody's and Standard & Poor's rate the insurer A2 and AA, respectively, both with a negative outlook.

The authority authorized up to $300 million of refunding for UMDNJ, giving the school $165 million of borrowing capacity for traditional, fixed-rate refundings. Anderson said current market conditions do not offer enough refunding savings on those bonds, yet that may change later this year when UMDNJ brings forth its $135 million deal.

"The authority and the university authorized issuing refunding bonds to take out several other series of university debt," Anderson said. "None of those refundings are attractive right now. They don't hit savings targets, but we authorized them just in case by the time we get around to actually doing the deal, the market changes and may present savings."

Along with the decreasing credit ratings of its insurers, UMDNJ has credit challenges of its own. Moody's rates the school's $648 million of outstanding debt Baa2 and placed the credit on watch for possible downgrade in early March. The rating agency expects to conclude its review of the university by the end of August. Standard & Poor's rates the school BBB.

In late March, authority and university officials were considering a much larger bond deal for the school, up to $750 million for refunding with $50 million to support capital projects at UMDNJ. Those plans changed due to market volatility.

"We kind of narrowed the range of refunding targets based on the market," Anderson said. "That was if we could refund all the outstanding debt, and we just narrowed that down to a more realistic number."

Along with signing off on refunding debt for UMDNJ , the authority approved up to $250 million of fixed-rate, new-money debt for Princeton University. The bonds will price competitively in the first week of September. McCarter & English LLP is bond counsel and Government Finance Associates Inc. is Princeton's financial adviser while Public Financial Management Inc. will advise the authority.

Other approved deals include up to $155 million of fixed-rate borrowing for the Richard Stockton College of New Jersey,which Morgan Stanley will price in early August, and up to $32.5 million of fixed-rate new money bonds for Montclair State University. Lehman Brothers will price those bonds in September.

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