CHICAGO - The University of Toledo will enter the market today with roughly $35 million of fixed-rate general receipts bonds in the first of two series that will refund recent notes used to take out all the system's insured variable-rate demand bonds.

On July 16 the university plans to sell $58.4 million of variable-rate demand bonds that will be supported by a letter of credit from JPMorgan Chase NA.

The transaction comes as the university enjoys a larger and diverse revenue base stemming from a two-year-old merger with Medical University of Ohio, a move that boosted the new entity's status to the third-largest public university in the state.

Proceeds from both series will be used to pay off $90 million of bond anticipation notes the university sold May 20. Those notes refunded variable-rate demand bonds that were originally issued in 2002 and carried insurance from Financial Guaranty Insurance Co., the once-triple-A monoline insurer that now carries junk-bond ratings.

"Obviously with the trading penalty assigned to FGIC-insured transactions, it was beneficial to refund with a traditional letter of credit," said Rich Bellis, the university's interim assistant vice president for finance.

Fifth Third Securities Inc. is the underwriter on today's fixed-rate deal. Piper Jaffrey & Co. is the underwriter on next week's variable-rate series. Squire, Sanders & Dempsey LLP is bond counsel. The university did not use a financial adviser.

Moody's Investors Service affirmed its A2 rating with a stable outlook. Standard & Poor's affirmed its A long-term rating on the university's debt, and also assigned top long- and short-term ratings to the variable-rate bonds based on JPMorgan Chase's letter of credit and the university's underlying rating. Both rating agencies have a stable outlook on the debt.

The $34.9 million fixed-rate issue today will bring down the university's total unhedged floating-rate debt, Bellis said. After next week's sale, the university will have roughly $270 million of outstanding debt, of which $158 million is floating-rate - and all of which is hedged in a series of five floating-to-fixed-rate swaps.

In noting the university's swaps in a recent rating report, Moody's said the current mark-to-market valuation of the swaps is negative $9.9 million.

The university also has about $100 million of outstanding auction-rate bonds originally issued in two series in 2005 and 2007. The interest rates on the auction debt, which is insured by CIFG Assurance NA and Ambac Assurance Corp., have been held down by "relatively low" maximum interest rate formulas, Bellis said. The university is likely to refund its ARS next year when it returns to the market with a new-money issue.

The bonds being sold today and next week are secured by the university's general receipts, which include nearly all its revenue other than state appropriations. The university's revenues have totaled around $669 million since the 2006 merger with the Medical University of Ohio, a public university and medical school that owns and operates three regional hospitals.

While solidifying a wide and diverse revenue base for the newly formed entity, the merger also means the new entity now faces significant exposure to the volatile health care sector, analysts said. For example, about one-third of the university's 2007 revenues came from patient revenues. Other credit concerns include recent enrollment declines on the main campus - but applications for fall 2008 are up and management expects that to continue.

The university plans to issue $40 million to $50 million of new-money debt early next year. Proceeds from that issue would finance a series of campus projects, including relocating the pharmacy school to the Health Science Campus, renovating academic space, and adding seven to 10 intensive care units at University of Toledo Medical Center.

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