Virginia College Building Agency Bringing $309M to Market Today

WASHINGTON - The Virginia College Building Authority will bring $309 million of revenue bonds to market in a negotiated transaction today to finance about 30 construction projects at nine colleges and universities ranging from sports facilities to parking decks.

While Virginia and its agencies typically sell bonds competitively, finance officials decided that this and other recent deals would be sold on a negotiated basis to tap retail demand, Evelyn Whitley, debt management director for the state treasurer's office, said yesterday.

"Retail seems to be necessary to get the deal done and we've felt that it was a good experience in the past few deals," she said.

The Series 2009A bonds will have a retail-order period today led by Citi, with institutional pricing set to follow tomorrow. Barclays Capital, Loop Capital Markets LLC, Morgan Keegan & Co., Merrill Lynch & Co., and Wachovia Securities round out the underwriting team for the deal.

Public Resources Advisory Group is financial adviser. Richmond-based Troutman Sanders LLP is bond counsel and Hunton & Williams LLP is underwriters' counsel.

The bonds will mature serially from 2009 to 2023, with term bonds in 2028, 2033, and 2038, according to the preliminary official statement.

The projects range from the construction of a new business school building for the College of William and Mary, which will receive about $25 million of the proceeds, to the development of a new hotel and conference center for George Mason University, which will obtain $24 million from the financing.

The bonds are being sold through the authority's public higher education financing program. They are backed by a revenue pledge from the nine schools that participate in a pooled bond program, rather than the state's credit, which is triple-A. But in the event that any higher education institution defaults on its payments, the state comptroller can intercept appropriations to that college or university to fill the gap, a move that adds another layer of security to the bonds, Whitley said.

Moody's Investors Service, which rates the deal Aa1, agreed that the program draws additional strength from the intercept mechanism.

"Should a participating institution default and trigger the intercept provision, the comptroller is additionally directed to make all future loan payments to the VCBA on the institution's behalf for the remaining life of the debt," Moody's said in a ratings report.

The deal is rated AA by Standard & Poor's and AA-plus by Fitch Ratings.

Authority officials hope to find strong demand from investors because the bonds are coming to market early in the year, according to Whitley.

"The market was improving somewhat in the end of December so we're certainly hopeful that it will be in our favor and that the typical January demand for bonds will be there," she said. "We hope we've got a little ahead of other issuers."

The VCBA's pooled bond program, under which it can issue debt and loan the proceeds to colleges and universities, was started in 1996. The schools use the money for various capital improvement projects and repay the loans to the authority. The agency uses that money for debt service. The VCBA has nearly $1 billion of bonds outstanding under the program.

The bonds being sold today are not part of a $1.4 billion package that state lawmakers approved last March, which included $1.02 billion for higher education construction projects to be sold through the VCBA. Whitley said the VCBA and the Virginia Public Building Authority will likely return to market in the spring to sell some of those bonds.

Meanwhile, no Virginia agency has been immune to the deterioration of the economy. The state is facing a revenue shortfall of nearly $3 billion in this fiscal year and next, and universities and colleges will be affected by it.

Gov. Timothy Kaine in late December proposed 15% cuts to most state agency budgets for fiscal 2010, including state colleges and universities. He also proposed cutting community colleges' state aid by 10% to help plug the $2.9 billion revenue gap in the $77 billion biannual budget. The General Assembly will consider those cuts - along with others Kaine proposed to close the budget gap - next week.

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