DALLAS — Texas A&M University System Board of Regents will complete a $196 million issue of Permanent University Fund bonds Tuesday with a $71 million refunding expected to provide net present value savings of 13.4%, or $10.7 million.
The tax-exempt refunding follows the pricing of $125 million of taxable bonds in the market late Monday.
The bonds priced Monday offered lower rates as taxable debt, said Maria Robinson, director of Treasury Services for TAMUS.
Because of backing from the Texas Permanent University Fund, the debt has triple-A ratings from all three rating agencies.
JPMorgan is book-runner on the negotiated deal. There are seven co-managers.
First Southwest Co. is financial advisor. Andrews Kurth is bond counsel.
Proceeds from this issue will permanently finance $125 million of outstanding PUF commercial paper and refund the PUF Series 2004 bonds.
PUF provides revenues equivalent to 2.47 times debt service. The University of Texas Investment Management Co. manages the $12.8 billion PUF.
With this deal, A&M will have $754.6 million of PUF bonds and no PUF commercial paper outstanding.
The system’s long-term debt is primarily fixed-rate, and, over time, the system builds up the commercial paper to an annual limit of $125 million.
Texas A&M University management estimates that $270 million of additional PUF debt could be issued in the next two years for various capital projects, previously approved by the board.
“We consider a lowered rating unlikely during the two-year outlook period, given the strong value of the PUF, substantial coverage of outstanding debt and the university’s moderate upcoming debt plans,” wrote Standard & Poor’s analyst Bianca Gaytan-Burrell.
The market value of PUF investments, excluding land, rose to $12.7 billion as of Aug. 31, 2011, from $10.7 billion at Aug. 31, 2010. The university estimates PUF market value at $12.84 billion as of May 31.
UTIMCO reports that much of the continued increase in market value is due to strong investment returns as well as strong mineral income from the PUF lands. PUF investment returns, calculated at the end of the fiscal year on Aug. 31, 2011, were 14.62%, compared to 13.04% in 2010 and negative 12.98% in 2009.
The UT Board of Regents approved revisions to the PUF’s investment policy statement that took effect in September 2011. The PUF cites a goal of preserving the fund’s corpus and maintaining stable annual distributions through the use of a targeted 5.1% average annual total return, adjusted for inflation, during rolling 10-year periods.
PUF investment earnings are transferred to the Available University Fund, which provides for debt-service payments.
Texas A&M also issues revenue financing system bonds backed by revenues from the main campus in College Station and the satellite campuses.
With a revenue base of $3.54 billion, the Texas A&M system will have $2.7 billion of rated PUF and revenue debt outstanding after this deal, according to Moody’s Investors Service.
“The system’s statewide presence across 11 campuses, a comprehensive health center and seven research agencies serving almost 99,000 full-time equivalent students provides the fundamental underpinning for A&M’s rating,” noted Moody’s analyst Jenny Lin Maloney.
The A&M system’ fall 2011 full-time equivalent enrollment of 98,744 students represents a 2.9% increase from fall 2010.
The system is poised to enjoy continued favorable enrollment trends for the foreseeable future, due to a 19% projected growth in high school graduates in Texas over the next decade and its position as the state’s land-grant university, Moody’s said.
Like other public universities, Texas A&M is caught up in state politics over tuition increases as the once-affordable system grows increasingly expensive.
At the satellite campuses of the TAMU and UT systems, tuition was allowed to rise in the past year while holding steady at the main campuses, according to news reports.
Each of the university systems now has a satellite university that charges more for tuition than the main campus. UT Dallas has higher tuition than the Austin main campus, and Prairie View A&M, an historically black university, charges $129.77 per semester compared to $126.55 at the main campus, according to the Bryan-College Station Eagle.
Last week the A&M system’s chancellor, John Sharp, announced the hiring of a private company to run its campus dining, landscaping, building maintenance and cleaning services in a deal reportedly worth about $260 million in cash and savings for the school over the next decade.
Sharp’s call to privatize food and other services created some worries that hundreds of jobs at the A&M system’s flagship campus would be in jeopardy, according to the Associated Press. But Sharp said the company has agreed to keep current workers in their jobs.
Last week, Sharp announced that the Texas A&M system was named one of three national biosecurity centers, a decision that he said will attract investment and be a catalyst for the biopharmaceutical industry in Texas.
Texas A&M joins sites in Maryland and North Carolina as centers developing drugs to fight bioterrorist threats, pandemic influenza and other infectious diseases.
Sharp called the grant “one of the biggest federal grants to come to Texas since NASA was placed here some years ago.”
The $285 million award includes about $176 million in federal grants over five years.