UT System's second deal of the week offers tax-exempts

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DALLAS – After a strong response to a $350 million pricing of taxable revenue bonds, the University of Texas System will offer a $250 million tax-exempt series that carries the same triple-A ratings.

The deal led by Bank of America Merrill Lynch is scheduled to price through negotiation on Thursday.

The two series were designed to appeal to different investor groups, according to Allen Hah, assistant vice chancellor for finance at the UT System in Austin.

“We issued the Series A bonds as taxable primarily because the taxable market has become increasingly attractive, offering interest rates close to tax-exempt rates, providing an opportunity to lock-in historically low interest rates,” Hah told The Bond Buyer via email.

“We had a very strong result pricing the taxable Series A bonds with a diverse investor base including bond funds, insurance companies, and international investors, some of which were new to the UT credit and to higher education,” Hah said. “We are hopeful to have a similar response to the 2017B bonds. Given the tax-exempt nature of the bonds, the investor base will likely also include some retail interest.”

The sales came with the launch of a new UT System Finance website developed through the firm BondLink that gives investors a wide range of information about the system’s debt offerings, capital projects and bios of the finance officers.

Former assistant Massachusetts state treasurer Colin MacNaught founded BondLink as a tool to help public entities issue bonds more efficiently.

“UT is a very sophisticated issuer,” MacNaught said.

The September deals continue a trend of strong growth in issuance from higher education in Texas. Through the first half of 2017, volume rose nearly 36% to $2.69 billion compared to the same period in 2016. Last year brought high volume from colleges and universities after the Texas Legislature approved more than $3 billion of tuition revenue bonds statewide in the 2015 legislative session. That included nearly $1 billion for the UT System.

The system’s TRB authorizations have all been issued, and the state has appropriated related debt service in the 2017 legislative session that ended in May.

The Revenue Financing System is one of two vehicles for UT debt with about $6.2 billion outstanding. UT also issues so-called PUF bonds backed by the Permanent University Fund. Between the two, UT has $10.2 billion of outstanding debt.

RFS debt is backed by a pledge of all legally available revenues and fund balances of the UT System. Specifically excluded from the pledge are state appropriations, the Available University Fund, and the income from the Permanent Health Fund.

“The AAA RFS rating is supported by the system's substantial resource base, positive operating history and coverage, revenue diversity, stable enrollment and program demand, and an experienced management team,” according to Fitch analyst Susan Carlson.

UT is one of the nation’s largest systems of higher education, with more than 234,000 students and more than 2.9 million patients across eight universities and six health institutions. The system’s research enterprise accounts for about $2.2 billion in annual expenses.

“Demand for UT's educational services remains strong, supported by vibrant regional demographics and a relatively low-cost of attendance,” according to Moody’s analysts. “Total enrollment continues to increase, expected to be up approximately 2.6% for fall 2017 based on preliminary information.”

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Primary bond market Sell side Revenue bonds Higher education bonds The University of Texas Board of Regents Texas