As the University of Medicine and Dentistry of New Jersey gears up for a long-awaited refinancing, questions continue over its billing and financial practices.

The New Jersey Educational Facilities Authority will issue up to $575 million of refunding debt on behalf of UMDNJ, with Morgan Stanley as book-runner. A preliminary official statement may come out at the end of January or early next month, according to NJEFA executive director Roger Anderson.

Officials were waiting to draft a POS until the school finalized an outside audit compiled by PricewaterhouseCoopers LLP. The firm finished the audit last month and the university released it yesterday.

In addition, Sen. Paul Sarlo, D-Bergen and Essex, who heads the Senate Legislative Oversight Committee, said he will hold public hearings in late February or March regarding allegations of overbilling and inflated medical costs at UMDNJ.

In October, the Newark Star-Ledger reported that the university continued to overbill even during a two-year period when there was a federal monitor observing the school. That federal oversight ended on Dec. 31, 2007.

Meanwhile, the financing structure of the deal will allow the school to tap into yearly state-aid payments to help pay debt service costs.

"It's not so much a dedication," Anderson said. "It's just an intercept so [the state aid] gets used first for debt service before it gets used for anything else."

UMDNJ receives roughly $200 million in state aid each year. New Jersey's $33 billion fiscal 2009 budget contains a $2.1 billion deficit, and Gov. Jon Corzine is calling for more than $800 million of program cuts to help close that gap.

While the governor's detailed list of spending reductions does not single out UMDNJ specifically, the state's Commission on Higher Education will receive $440,000 less than previously budgeted.

In addition, Corzine has said the budget may need further cuts depending upon how revenues perform for the rest of the fiscal year, which ends June 30.

Anderson said debt service coverage on the bonds would still be strong even if the state had to reduce UMDNJ's yearly allocation. Using the school's entire $200 million state-aid payment for debt service would offer approximately three times coverage on the bonds.

"Even if they cut state aid in half - which would not be likely - there would still be enough money there for debt service coverage," Anderson said.

Officials had been working on the refinancing for most of 2008, yet market conditions, searches for letters of credit, and waiting for the PWC audit pushed the deal into 2009.

The transaction will help refinance $34 million of auction-rate lease revenue certificates into variable-rate mode and restructure $95 million of variable-rate bonds into fixed-rate securities. In addition, the school plans to terminate a $34 million swap agreement with Lehman Brothers Special Financing.

The authority anticipates refinancing other debt for savings, depending upon market conditions.

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