DALLAS — The University of Texas System is preparing to price $631 million of taxable and tax-exempt bonds Tuesday, including $430 million for a new UT Southwestern Medical School hospital in Dallas.
The bonds will be issued in two series. Series C will be taxable Build America Bonds and Series E will be revenue financing system bonds. Both series will be fixed rate.
The negotiated deal is led by book-runner JPMorgan. The UT system does not use an outside financial adviser.
Revenue financing system bonds are backed by system-wide revenues, including tuition and fees. Following this transaction, the system will have $5.7 billion of RFS debt outstanding, with 77% as fixed-rate bonds and 23% in variable-rate modes. The BABs will be issued as direct-subsidy debt.
The three rating agencies have affirmed the UT system’s triple-A credit.
“Moody’s expects the University of Texas System to retain its position as one of the premier higher education systems in the nation,” Moody’s Investors Service analyst Laura C. Sander wrote. “UT is among the largest university systems in the world, with nine academic institutions and six health institutions all contributing to an operating base of $11.6 billion in FY 2009.”
UT system regents last month decided to issue the debt for the new hospital as soon as possible to take advantage of record-low interest rates.
Officials plan to start construction next March and complete the project in September 2014. The 12-story, 424-bed facility is designed to replace the aging University-St. Paul Hospital that is connected to the UT medical school.
The new project will coincide with construction of replacement facilities for nearby Parkland Hospital — a Dallas County public hospital affiliated with UT Southwestern.
Parkland, rated AAA by Standard & Poor’s and Fitch Ratings, last year issued $705 million in three series of limited-tax bonds for the hospital complex, which is expected to cost nearly $1.3 billion.
As with Parkland, private fundraising is expected to supplement the bond financing for UT’s new hospital.
University-St. Paul, which opened in 1963, will remain open during construction of its replacement on a 32-acre tract nearby, officials said.
UT institutions comprise one of the nation’s largest research enterprises, with research activity of nearly $1.8 billion in FY 2009, according to analysts.
Around two-thirds of that research is health-related. Annual operating revenues as calculated by Moody’s grew 34% between fiscal 2005 and 2009 to $11.8 billion.
Principal revenue sources for the system include patient care at 35% of total revenue in fiscal 2009, grants and contracts at 21%, state appropriations at 18%, and student charges at 12%.
The UT system’s total endowments were valued at $16.8 billion as of July 31, ranking it number five among higher-education endowments in the the country. The endowment includes a $10.7 billion Permanent University Fund that provides annual revenue for the UT and Texas A&M systems and facilitates triple-A bond guarantees for some debt.
“We understand that the system has plans for substantial new-debt issuances currently estimated at more than $500 million in the next several years for its ongoing capital plans,” wrote Standard & Poor’s analyst Bianca Gaytan-Burrell.