BRADENTON, Fla. — The double-A rated University of Kentucky plans to competitively price $99.7 million of refunding bonds on Thursday.

The university, the state's flagship, expects to obtain present value savings of $14 million or 7.5%, an official said.

The deal is structured to current and advance refund several series of outstanding bonds with maturities over 12 years, and within the existing maturities of the refunded debt.

Moody's Investors Service assigned an Aa2 rating to the refunding and a stable outlook, while Standard & Poor's assigned an AA-minus rating and maintained a positive outlook.

Both agencies affirmed the Aa2 and AA-minus ratings on the university's outstanding debt, which included $647.8 million of bonds, notes and capital leases as of June 30, 2013.

Moody's said its Aa2 rating and stable outlook reflects the university's position as a major health care provider, its "consistently positive operating performance," and substantial financial resources.

The rating also incorporates "the university's high exposure to potentially volatile healthcare operations, rising debt and future capital plans, increased competition for federal research funding, and diminishing commonwealth financial support," Moody's said.

S&P revised its outlook to positive on all the ratings in February.

"The positive outlook reflects our expectation that we could raise the rating on the university to AA over the next two years if it continues to produce strong financial results on a full accrual basis, its student enrollment and patient utilization continue to grow, and additional debt needs are balanced with anticipated further improvement in financial resource ratios," said S&P analyst Ken Rodgers.

The outlook could also be revised to stable if there is a slowdown in enrollment, patient utilization, and profitability or if financial resource growth lags behind additional debt issuance, Rodgers said.

In its regular session this year, the Kentucky General Assembly authorized the university to issue $340 million in bonds to finance multiple capital projects across campus, including improvement to the College of Law, the Student Center, and certain healthcare facilities, according to bond documents.

An official said it is hoped that this week's refunding will price close to spreads obtained for the sale of $249.9 million of general receipts new money bonds earlier this year.

JPMorgan won the bid on the largest component of the March competitive offering, which was $190.25 million that sold for a true interest cost of 3.8%.

The bonds sold at a premium of $104.97 with maturities from 2016 to 2044.

Yields ranged from 0.3% and a 4% coupon in 2016, to 3.2% with a 4% coupon in 2028, to 4.15% with a 4% coupon in 20144. Spreads to the MMD benchmark scale ranged from 5 basis points, 33 basis points, and 47 basis points, respectively.

The bonds were issued to finance capital needs, including a new $110 million science building, a $100 million renovation of the football stadium, and a $65 million renovation/expansion of the business college that includes a full trading complex for finance students.

J.J.B. Hilliard, W.L. Lyons LLC is the University of Kentucky's financial advisor.

Peck, Shaffer &Williams, a division of Dinsmore & Shohl LLP, is bond counsel.


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