DALLAS - Texas' oldest university system - Texas State University - is preparing to market $164 million of revenue bonds for construction projects on the flagship campus in San Marcos and at Sam Houston State University in Huntsville, as well as expansion of the North Austin campus.

The system, headquartered in Austin, will sell the bonds through negotiation next week, with closing scheduled Aug. 19, said Roland Smith, vice chancellor for finance.

Lehman Brothers is lead manager on the deal, with RBC Capital Markets, Estrada Hinojosa & Co., and Piper Jaffray & Co. as co-managers. First Southwest Co. serves as financial adviser.

Fitch Ratings yesterday maintained its AA-minus rating on the TSU system with a stable outlook. Standard & Poor's and Moody's Investors Service are expected to rate the deal this week, with previous ratings at A-plus and Aa3, respectively.

The bonds will fund a parking garage and student recreation center at the TSU campus in San Marcos and a classroom building at the North Austin campus in Round Rock, Smith said. Sam Houston State, one of the fastest-growing universities in the state because of its proximity to Houston, will add a performing arts center and an academic building.

Established in 1911, the TSU System has experienced steady growth in recent years and has been buoyed by Texas' relatively healthy economy, Smith said. The main Texas State campus, about 30 miles south of Austin, is nearing enrollment of 20,000.

The system this year lost Angelo State University in San Angelo, to the Texas Tech University System headquartered in Lubbock. Angelo State sought the move to the Tech system, which is in the same region of West Texas, and the shift was authorized by last year's Legislature.

The transition is still awaiting final signatures. Angelo State, with an enrollment of 6,218, was the third-largest of nine universities in the TSU System and accounted for $80 million of debt and $450 million of assets.

TSU has outstanding debt of $550 million. Standard & Poor's noted in a report last year that the loss of ASU could affect the rating, but Smith said he has not heard of any impact yet.

Fitch did not lower the rating based on the loss of ASU.

"The recent transfer of Angelo State University to the Texas Tech University System (rated 'AA' by Fitch) appears to have been driven by unique local circumstances," analysts noted. "Further defections from TSUS leading to declines in enrollment or financial flexibility could exert negative rating pressure. No such defections are currently anticipated."

Otherwise, Fitch saw positive trend lines for the TSU System.

The rating "reflects TSUS' sound operating performance and trend of steady enrollment increases across its multiple campuses," analysts wrote. "The primary credit concern is the system's above-average debt levels, including a planned $80 million to $90 million issuance later this year.

"Fitch expects TSUS to maintain operating profitability on par with recent historical performance, which should allow it to manage the expected increase in debt burden. However, issuance of additional new-money bonds, without a commensurate rise in financial resources, could have negative credit implications."

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.