DALLAS — The Texas A&M University System is giving a lean muni market a taste of its top-rated debt Wednesday with $87.2 million of bonds backed by the Texas Permanent University Fund.
The negotiated deal is led by book-runner Piper Jaffray & Co. Siebert Brandford Shank & Co., Stephens Inc., Wells Fargo Securities, Loop Capital and RBC Capital Markets are co-managers.
First Southwest Co. is financial advisor and Andrews Kurth will serve as bond counsel.
“Bonds with those ratings in that amount should be grabbed up pretty quickly, especially given the current lack of supply,” said Rich Williams, portfolio manager and vice president at Cavanal Hill Investment Management.
The new bonds will refund commercial paper and 2012 and 2013 maturities of a 1998 bond issue.
After this deal, $5 million of PUF-backed commercial paper will remain outstanding, and that is expected to be retired with cash in December.
The bond refunding portion of the deal is expected to bring net present-value savings of about $45,000, or 4.6% of the refunded principal.
The commercial paper has been used for construction across the A&M System, which includes 11 academic campuses, seven research and service agencies, and a health center.
The original A&M campus is in College Station near Houston.
A&M’s fiscal 2011 budget is $3.3 billion, and the system has an endowment with a market value of $6.7 billion.
With the issuance of the 2011 PUF bonds, the system will have $2.2 billion of debt outstanding.
All of A&M’s long-term debt is fixed rate and includes $631 million of PUF debt, $1.6 billion of revenue financing system debt, $5 million of PUF commercial paper notes, and $6.825 million of revenue financing system commercial paper notes.
Established by the state constitution in 1876, the PUF is an endowment to support the University of Texas and Texas A&M University systems.
The fund had an unaudited market value of $12.83 billion, excluding land assets, as of June 30.
One-third of the PUF is available for Texas A&M.
“The system’s large financial resource base, consisting of total financial resources of $7.5 billion at Aug. 31, 2010, provides strong support for the system’s high-quality Aaa rating,” according to Moody’s credit analyst Jenny Maloney
“Total financial resources reflect the wealth of the system, its largest affiliated foundations, and A&M’s one-third share of the market value of the Permanent University Fund,” she said.
While Standard & Poor’s rates the state AA-plus, it confers a AAA and a stable outlook on the Texas A&M System bonds.
“A negative rating action is unlikely during the outlook period given the strong value of the PUF, substantial coverage of outstanding debt, and the university’s moderate upcoming debt plans,” said Standard & Poor’s analyst Bianca Gaytan-Burrell.
The bonds also carry AAA ratings from Fitch Ratings, which maintains a stable outlook.