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University of Missouri Hits Market Monday

CHICAGO - The University of Missouri Board of Curators will offer up high-grade paper early next week in a nearly $300 million revenue-backed issue to refund existing debt and pay off commercial paper.

Morgan Stanley and Bank of America Merrill Lynch are the senior managers. A retail order period is set for Monday with an institutional pricing scheduled for Tuesday. Prager & Co. LLC is advising the university and Thompson Coburn LLP is bond counsel.

About $178 million will advance refund debt from a 2007 issue and $128 million will pay off commercial paper.

Ahead of the sale, Moody's Investors Service affirmed the university's Aa1 rating and Standard & Poor's affirmed its AA-plus rating. The bonds are being sold under the university's system facilities revenue bond credit.

Standard & Poor's said the rating is supported by "UM's strong balance sheet ratios relative to the rating category, its demand position as the flagship university and land-grant institution in Missouri, stable enrollment, manageable debt burden, solid operating performance, sound fiscal management, and tradition of strong fundraising."

Standard & Poor's added that it considers UM's new debt issuance plans manageable. The university board has approved up to $200 million in additional debt issuance over the next two years for its ongoing capital program and a total of $350 million is planned over the next three years.

Challenges include the university's only adequate level of financial resources for the rating category, with unrestricted net assets in 2013 equal to 53.5% of expenses and 103% of pro forma debt. The university faces risks with its ongoing capital plan and uncertainty from potential health-care reform, given that a significant 30% of revenues are from health-care operations.

The university is also challenged by an expected flattening of high school graduate demographics for the state.

The debt will be on parity with about $1.3 billion of existing system facilities revenue bonds and will secured by a pledge of gross revenues generated from auxiliary system operations and the collection of general student fees.

The University of Missouri system includes 45 colleges, schools, and divisions, and serves approximately 75,000 students on four campuses in Columbia, St. Louis, Kansas City, and Rolla. Total enrollment was up .3% in 2013 to more than 75,000 and a slight increase is expected this fall. Columbia is the flagship campus.

Moody's said the credit benefits from the school's "importance in providing educational and health services in the Aaa-rated state of Missouri."

Moody's said recent volatility in state funding and a likely tempering of enrollment growth are factored in the rating. Analysts added that the university's debt has grown faster than its financial resources over the last five years and "has limited additional debt capacity beyond the $350 million total contemplated for the next three years."

The university received about 14% of its operating revenue in 2013 from the state. The university has a $1.25 billion endowment.

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