MENLO PARK, Calif. — The University of California will sell $670 million of mostly taxable Build America Bonds next week, its largest foray into the market this year, to help pay for campus upgrades.
The university’s Board of Regents will offer the limited project revenue bonds — $520 million of BABs and $150 million of tax-exempt paper — to finance and refinance housing, athletic, and parking facilities on six of the system’s 10 campuses.
Sandra Kim, executive director of external finance at the university, said late last week the tax-exempt side of the sale that would be used for refunding was in flux and will depend on market conditions.
She said the BABs will have two term bonds maturing in 2034 and 2050.
The bonds will be secured by a pledge of revenues from the projects financed and subordinated to the $5.9 billion of outstanding general revenue bonds.
Morgan Stanley and Wedbush Securities will be the lead book-runners on the sale. Orrick, Herrington & Sutcliffe is bond counsel.
Buyers should be hungry for the university system’s tax-exempt paper amid the slower economy and the flood of BABs.
“I am not sure about the Build America Bonds, I don’t really buy a lot of those,” said Alexander Anderson, a fixed-income portfolio manager at Envision Capital Management in Los Angeles. “But I can tell you the tax-exempt portion will probably be eaten right up.”
Anderson said California’s unsettled state budget makes the government-tied bonds a little riskier, but noted that the recent lack of issues by the state and in general has likely increased appetite.
The state has been without a budget since the start of the fiscal year on July 1, in the second-longest deadlock in California history.
Last week, Controller John Chiang said the state can make it through this month without issuing IOUs after general fund revenue came in ahead of projections.
Moody’s Investors Service rated the bonds Aa2 with a stable outlook. Standard & Poor’s gives a AA-minus, also with a stable outlook.
Standard & Poor’s and Fitch Ratings both rate California’s general obligation bonds A-minus. Moody’s rates them A1.
The university, which has 220,000 students, does more than $3.7 billion of research annually and generated over $5 billion of net patient revenue in the last fiscal year at its five medical centers.
It also has strong financials, with more than $1.5 billion in operating cash flow, $3.5 billion of unrestricted financial resources, and a short-term investment pool of more than $10 billion, according to Moody’s.
However, Moody’s said the university still relies heavily on state funding, has had to shoulder rising pension costs, and is exposed to the health care sector.
The university’s outstanding debt has also grown to more than $13.3 billion in fiscal 2009 from $8.3 billion in fiscal 2006, according to the rating agency.
A 26-member board of regents, 18 of whom are appointed by the governor and approved by a majority vote of the state Senate, governs the university system.
