University of Arizona $230M deal will fund construction

Bonds

The University of Arizona is pricing $230 million of taxable and tax-exempt revenue bonds for new facilities as it continues to recover from effects of the COVID-19 pandemic.

Pricing began Wednesday and will be completed Thursday through negotiation with book runner JPMorgan with Citigroup as co-senior manager. RBC Capital Markets is financial advisor, led by managing director Kurt Freund.

The bonds are rated Aa2 by Moody’s Investors Service with a negative outlook and AA-minus with a stable outlook by S&P Global Ratings.

The Old Main Building anchors the University of Arizona Tucson campus.

University of Arizzona

“The negative outlook reflects the university’s more limited ability to adjust to operating volatility over the next several years due to already modest operating performance and thinning liquidity,” Moody’s analyst Mary Cooney wrote in the ratings report. “While the university continues to invest in multiple strategic objectives, its ability to sustainably return to stronger operating performance is uncertain and will be a key factor driving future credit quality.”

With this deal, the university will have more than $1 billion of revenue finance system bonds outstanding.

The bonds are split in three series, Series A at $142 million and Series B and C at $43 million, all with 10-year call provisions. Series C is taxable.

Proceeds of the bonds will be used to build two research facilities, renovation of the chemistry building, and construction of a facilities management building.

The university is also planning to issue $86 million of certificates of participation that carry ratings a notch lower than the revenue bonds.

Last fall, the university offered a mix of in-person and online courses, a practice that continued into the spring semester.

The number of full-time-equivalent students for this fall was 45,517, up 1.8% from 2019, with much of the increase due to online growth. International enrollment, which accounts for 6.8% of total enrollment this year, is down from 8.7% last fall.

“The overall net financial effect on the university in fiscal 2020 was $5.4 million, primarily due to pro-rated room and board refunds as well as refunds for parking,” S&P analyst Laura Kuffler-Macdonald said.

Although the university received $33.3 million from the Coronavirus Aid, Relief, and Economic Security Act funding guidelines allocate half of this money for direct student support and the other half for institutional support, partially offsetting expenses, she noted.

“The stable outlook reflects our expectation that, during the outlook period, UArizona will improve its current operations beginning in fiscal 2021 and its available resources,” Kuffler-Macdonald said. “Furthermore, we expect demand metrics will remain stable or improve and that no additional debt will be issued over the outlook period.”

Leave a Reply

Your email address will not be published. Required fields are marked *