DALLAS -Rice University in Houston is coming to market today with a two-tranche issue worth $200 million to fund continued construction of a new research center and two student residences and take out some commercial paper.

The Houston Higher Education Finance Corp. plans to offer $100 million of Series 2008A and $100 million of Series 2008B revenue bonds on behalf of the school. The debt will initially be issued as variable-rate demand bonds that can be converted to weekly rate, commercial-paper rate, dutch-auction rate, or term rate.

Morgan Stanley is senior manager and remarketing agent for the Series 2008A bonds and JPMorgan is senior manager and remarketing agent for the Series 2008B bonds. Ramirez & Co. is co-manager for both series of debt. Vinson & Elkins LLP and Bates and Coleman PC are co-bond counsel.

Proceeds will finance construction of the private university's new collaborative research center, and a utility plant that will serve the center. The 10-story, 480,000-square-foot facility and parking garage are expected to be completed by the end of this year with the center opening in the first quarter of 2009.

Rice will celebrate its centennial in 2012, and has laid out a strategic plan for the second 100 years that includes an increased commitment to research and to "aggressively foster collaborative relationships with other institutions to leverage resources."

Additional debt proceeds will be used for two new residential colleges and off-campus student housing projects. Part of the Series 2008B bonds also will refund about $28.8 million of outstanding commercial paper notes.

Standard & Poor's assigned a AAA rating to the sale, citing the positive financial trends of the university, which had an endowment of $4.7 billion as of June 30, 2007, up 17.5% from the year earlier.

Analysts said Rice "demonstrates stable enrollment, very high student quality, and a very selective demand profile."

Other credit strengths include "consistently balanced operating performance, good revenue diversity and a moderate debt burden," according to analysts.

Moody's Investors Service assigned a Aaa rating to the sale, as well, due to a large and expanding financial resource base, a strong student-market position, consistently favorable operating performance, and good liquidity.

Analysts said the university's unrestricted resources increased 74% the past five years to $3.8 billion. About half of Rice's research revenue comes from the federal government, with 35% of total grant and contract revenue from the National Science Foundation, according to analysts.

Moody's said slow growth in federal research funding may hamper the university's plans to expand its research enterprise.

"While research funding in general and federal revenue specifically have grown at Rice in recent years, a slight reduction in revenue through the first three quarters of 2008 may reflect the slower growth occurring in federal research funding," Moody's analysts said. "Without tenant agreements in place for the [collaborative research center], the full financial impact of the facility on Rice is not clear."

Analysts said officials plan to issue another $130 million of debt over the next two years, concluding the $600 million of debt funding included in the university's capital-improvement plan outlined in 2005.

The highly competitive university, which accepts about 25% of freshman applicants, seeks to grow undergraduate enrollment to 3,800 students, analysts said.

Rice's enrollment has climbed steadily this decade to about 5,145 full-time equivalent students currently, including about 3,000 full-time undergraduate students.

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