DALLAS — The Tennessee State School Bond Authority’s negotiated sale of $427.7 million of higher education facilities revenue bonds set for Wednesday and Thursday is the culmination of months of planning and preparation.
“We’re hoping to take advantage of the cash in the market, low interest rates, and our good credit ratings,” said Mary-Margaret Collier, director of state and local finance at the SBA.
“We’ve been working on the structure of the refunding and new money for more than two months,” she said. “Some of our institutions began studying in November 2011 to determine how to take advantage of the low interest rates in this market.”
The sale include a $201.5 million tranche of 30-year bonds to take out the commercial paper that financed projects at a number of campuses, $104.1 million of federally taxable 20-year bonds, and a 30-year refunding tranche of $122.2 million.
The new money totals $277 million as some of the proceeds for the taxable debt will be applied to revenue-generating facilities such as parking garages and residence halls.
The sale schedule includes retail sales on Wednesday with institutional sales on Thursday.
The authority’s outstanding debt of $968.7 million is rated AA-plus by Fitch, AA by Standard & Poor’s, and Aa1 by Moody’s Investors Service. Tennessee’s general obligation debt is rated triple-A by Fitch and Moody’s, and AA-plus by S&P.
JPMorgan is lead underwriter. Co-managers include Raymond James/Morgan Keegan, Citi, Morgan Stanley and Piper Jaffray & Co.
Hawkins Delafield & Wood LLP is bond counsel. Public Financial Management is the SBA’s financial advisor.
The bonds are supported by university revenues, including fees and charges. Further support is provided by state law that allows the authority to intercept legislative appropriations to the schools if needed for debt service.
New-money proceeds will reimburse the SBA’s $300 million commercial paper program that provides construction financing for projects at state colleges, universities and community colleges.
The CP program is now at $253 million, close to its $300 million cap.
“We’re expecting strong support during the retail period from our alumni in Tennessee and nearby states,” Collier said. “These bonds support the construction of projects across the state. Institutional sales should also be favorable, because the Authority is such a strong credit.”
Projects being financed or refinanced include $65 million for a university center at the University of Tennessee’s main campus in Knoxville, $63 million for a new student union building at Middle Tennessee State University in Murfreesboro, and $27 million for undergraduate housing at Austin Peay State University in Clarksville.
“We schedule these sales to restore the CP program every 12 to 18 months,” Collier said. “We try to match the sales to the project needs, but the market is so favorable right now that we are going to cover some projects still under construction.”
In a change from previous practices, there will not be a surety policy or a debt service reserve for the bonds. The schools will make principal payments in October and May, with the first payment serving as an interest and sinking fund if the authority needs to intercept funds for debt service.
Middle Tennessee State University will make its complete annual payment to the SBA by Oct. 25 for the November debt-service payment.
The issues are structured as fixed-rate term bonds with annual maturities. The rapid amortization schedule calls for 75% of the current outstanding bond principal to be retired within 15 years.
The school authority issues debt for revenue-supported projects of the University of Tennessee Board of Trustees, which oversees four universities and three institutes, and the Tennessee Board of Regents, the governing body for six state universities, 13 community colleges and 27 technology centers.
