LOS ANGELES — In its first bond deal of the year, the University of California is planning to sell $950 million of revenue bonds next week to fund acquisition and construction of projects throughout its campuses.
The deal comes after
The agency said the downgrade reflects multiple years of operating deficits, rising fixed costs, and revenue constraints, as well as its growing debt burden.
The university's robust financial reserves and strong fundraising capacity will allow it to absorb continued moderate operating losses at this rating level while it implements initiatives to balanced operations, they added.
Wells Fargo Securities and Goldman, Sachs & Co., senior managers, will price the deal on Thursday.
Orrick, Herrington & Sutcliffe LLP is bond counsel and Swap Financial Group, LLC is pricing advisor.
The deal will be structured with serial and term bonds consisting of $550 million of tax-exempt bonds and $400 million of taxable bonds.
Standard & Poor's assigned the bonds its AA rating and stable outlook, citing the system's size, strength of its historically diverse revenue streams, and what the agency views as "impressive" demand metrics.
Other strengths include its self-supporting nature and strong financial performance of the medical centers and hospitals, value of the general endowment pool, which was $7.7 billion as of Dec. 31, 2013, and successful history of weathering multiple business and state funding cycles.
The university system, chartered in 1868, operates 10 campuses throughout the state and provides instruction to more than 238,000 undergraduate and graduate students.
"The system has weathered several years of increasingly difficult and complex fiscal pressures," Standard & Poor's analysts said in the credit report. "While it has implemented numerous strategic initiatives to manage through these pressures, the benefits may not fully be realized for several years, which could pressure the rating."
Analysts said the system faces a variety of risks in the next few years, including declining operating balance sheet metrics, growing pension and other postemployment benefit liabilities, significant maintenance needs, upcoming debt plans, and press on all major sources of revenue.
The system has approximately $2.5 billion of additional capital debt plans, including next week's issuance, during the next several years.
"We believe UC's future credit direction will be significantly influenced by management's response to the range of risks facing the system," analysts said.
The university last came to market in October with $450 million of weekly variable rate general revenue bonds, and in September with $1.9 billion of fixed rate general revenue bonds.
The system is planning to issue another $500 million of debt in a remarketing of taxable floating rate notes on April 10.
