WASHINGTON — The Virginia College Building Authority expects on Tuesday to competitively price $337.5 million of bonds for higher education projects, beginning a season of heavy issuance for the state.
The Series 2010B bonds are part of the authority’s 21st Century College and Equipment Program, initiated in 1996, which provides funding for academic buildings and other projects and receives appropriations from the General Assembly.
Debt service for the bonds are fully backed by state appropriations. The projects have been approved by the legislature and are funded on a cash-flow basis. The program has $1.42 billion of bonds outstanding.
The bonds, which mature between two and 20 years, are rated AA-plus by Standard & Poor’s and Fitch Ratings and Aa1 by Moody’s Investors Service. Underwriters have the option of submitting tax-exempt bond or taxable Build America Bond bids.
Troutman Sanders LLP is bond counsel and First Southwest is the financial adviser.
Last December, the authority sold $390 million of BABs to JPMorgan at a true interest cost of 5.08%.
Virginia, which is rated triple-A by the three major rating agencies, ended its fiscal 2008-2010 biennium with a $403.2 million surplus resulting from higher-than-expected revenues and cost-cutting measures. Most of the surplus will be redirected to the 2010-2012 biennial budget with the remainder going toward transportation projects, according to Fitch.
Still, the General Assembly faced a $939 million shortfall, which was made up by a reduced contribution to the state’s pension system and higher revenue estimates, Fitch said.
The authority’s competitive sale this week kicks off a busy period for state debt issuance. Virginia expects to price about $168.4 million of general obligation bonds the week of Oct. 11. Moody’s on Friday reaffirmed its Aaa rating for the state.
During the following week, the Virginia Public School Authority plans to issue debt for local school projects. Later in the month, the College Building Authority will return to the market with pooled bonds, the proceeds of which are used to purchase obligations from participating universities. Finally, the Virginia Public Building Authority expects to bring bonds to market in November.
The confluence of these deals this autumn is “coincidental” and does not reflect a need to get deal done before the expiration of the BAB program at the end of the year, said Evelyn Whitley, Virginia’s director of debt management. The College Building Authority typically issues annually in the fall, she said. Still, the amount of debt Virginia will be selling in the upcoming weeks could be a concern if other issuers are looking to price BABs before the end of the year, Whitley said.
“We’re not wedded to going with the BABs structure,” she said. With competitive sales, Virginia will take the cheaper option between BABs and tax-exempt bonds, she said.