The Pennsylvania Higher Educational Facilities Authority plans to sell $118.4 million of Series AM fixed-rate, tax-exempt revenue bonds through competitive bid on Wednesday.
The authority is issuing them on behalf of the Pennsylvania State System of Higher Education, or PASSHE, to benefit various projects for Pennsylvania’s 14 public system universities.
Proceeds will fund capital plan projects and capitalized interest, and pay issuance costs. The bonds will mature from 2012 through 2036.
Specifically, the financing is earmarked for renovation and construction of auxiliary facilities at Bloomsburg, Indiana, Lock Haven, Millersville, Shippensburg, Slippery Rock, and West Chester. Funds also will got to academic facilities renovation and construction at California, East Stroudsburg, and Millersville.
The state system also includes four branch campuses, several regional centers, and the McKeever Environmental Learning Center. In addition, the University of Pittsburgh, Temple University, Penn State University, and Lincoln receive state funding.
The bonds have received ratings of AA from Fitch Ratings and Aa2 from Moody’s Investors Service. Fitch’s outlook is stable, while Moody’s revised its outlook to negative from stable.
Moody’s outlook reflects “concerns on pressures on enrollment and net tuition revenues, expected state funding reductions, a growing unfunded post-retirement liability, and expected rising pension contributions, coupled with operating pressures from upcoming union contract negotiations, coupled with a high debt level that is expected to rise, although not at the pace seen in recent years,” the agency said.
Pennsylvania is in the final stages of budget deliberations this week, with deep funding cuts expected for state higher education.
Under a tentative agreement between legislative leaders and Gov. Tom Corbett, funding cuts for state-owned and -funded four-year colleges in the proposed $27.15 billion budget would be less than what Corbett sought in February, when he introduced the budget one month after taking office.
A compromise crafted late Friday would reduce aid for state-supported universities by about 20%. Corbett originally had sought a 50% reduction.
Fitch said its rating reflected “steady but narrow financial performance evidenced by a generally break-even to positive margin, which is supported by the stable system-wide enrollment and satisfactory balance-sheet resources.”
Fitch added that while appropriations from the state have been stagnant in recent years and will likely decline substantially in fiscal 2012, PASSHE, already having cut costs, is still flexible enough to decrease expenses and increase tuition and fees.
According to Fitch, the system’s operating margin has been slightly positive to break-even for four of the past five years, with the modestly negative margin in fiscal 2009 attributable to a delay in federal stimulus money.
“The stable margin, as well as a conservative investment policy, allowed PASSHE to modestly grow its balance-sheet resources in line with its expense base,” Fitch said.
Saul Ewing LLP of Philadelphia is bond counsel. Buchanan Ingersoll & Rooney PC is authority counsel. RBC Capital Markets LLC is the financial adviser.
Bank of New York Mellon Trust Co. is the trustee.