LOS ANGELES — The University of Oregon will sell its own bonds in the public markets for the first time when it prices $50 million in revenue bonds on March 17.
As state funding declined, UO joined with Oregon State University and Portland State in efforts to break off from the Oregon University System last year.
The three state universities were able to get legislation passed that became effective July 2, 2014 establishing their own boards and giving them greater control, said Karen Levear, director of treasury operations at the University of Oregon.
The schools that split off will be able to manage property, sell revenue bonds for capital projects, advance their own budget proposal to the Higher Education Coordinating Commission, a newly created state agency, and manage tuition and fees without having to wait for approval of a state authority.
The state, which no longer provides a significant source of funding to the universities, controlled the timing and amount of issuance prior to passage of the legislation, Levear said.
The boards will have the same powers and authorities as the State Board of Higher Education, which will still govern the four smaller campuses in the system: Eastern Oregon University, Oregon Institute of Technology, Southern Oregon University and Western Oregon University.
Even though the university made the payments on its own bonds under state control, and the payments did not impact state finances, the university would have had to get in line with other state priorities needing debt financing under the old system.
"Anything we needed to finance with bonds had to happen on the state treasurer's schedule and with the needs of the other six universities," Levear said.
The university also had to receive approval on capital projects from the legislature before it could seek debt financing prior to the change, she said.
The PFM group has helped the university structure its new credit, obtain its first bond ratings and assisted in introducing it to the market, said June Matte, a managing director and head of PFM's higher education practice.
Moody's Investors Service and Standard & Poor's rated the credit Aa2 and AA-minus.
The $50 million bond sale for the Eugene-based university will be structured as a 30-year tax-exempt bullet.
"We would like to take advantage of the fact that the rates are still low," Matte said. "We wanted to lock in the low cost of funding. That is what led us to decide we wanted a bullet structure, rather than amortizing."
It also helps create a level debt service schedule when combined with existing debt, Matte said.
The finance team looked at the savings on tax-exempt versus taxable rates, which are close to each other now, but in a 30-year time frame the cost of capital on tax-exempt is still cheaper, Matte said.
Bank of America Merrill Lynch is underwriter; Pacifica Law Group is bond counsel; and Hawkins Delafield and Wood is underwriter's counsel.
The bond proceeds will be used for ongoing tax-exempt projects on the campus such as the $80 million renovations of the Erb Memorial Student Union building, now underway, Levear said. Roughly $30 million to $40 million will be used for that project, of which the remaining funding has been obtained from other sources. It will also fund the $8 million cost of a new central kitchen being moved to the edge of the campus, and renovations to the university's largest classroom.
The university, which has enrollment of 24,000, is in the midst of a $2 billion comprehensive fundraising campaign and doesn't have plans to issue additional bonds this year, Levear said.
The finance team is anticipating attractive interest rates even with the market's current volatility, Levear said.
"We are counting on the university's good credit rating to achieve the best outcome possible," she said.
