Coming off a downgrade by S&P Global Ratings, the University of Connecticut intends to price $240 million in general obligation bonds this week.
Piper Jaffray & Co. is senior manager for the negotiated sale, which includes a two-day retail period starting Monday, before Wednesday's institutional sale. UConn expects strong retail activity, said its director of treasury services, John Sullivan.
The university is pricing the deal in conjunction with state Treasurer Shawn Wooden’s office.
The $175 million new-money component will be for project funding, while a further $65 million will refund some 2009 bonds outstanding, according to offering documents.
S&P on April 5 lowered its long-term ratings on all outstanding UConn GO bonds and special obligation-student fee revenue bonds to A-plus from AA-minus.
According to S&P, UConn's financial performance and available resources are constrained due to ongoing state budgetary pressure that limits improvement in financial operations and inhibits additional issuance of non-state supported debt.
“Despite this constraint, we currently rate UConn one notch above the state,” said S&P, which noted that the university derives more than 70% of its revenue from non-state sources and “exhibits certain other characteristics that make it somewhat independent of the state.”
S&P’s move affects $2.15 billion of total debt, including this week’s debt issuance, minor loans and capitalized leases. The outlook is stable for all issues.
Fitch Ratings and Moody’s Investors Service rate UConn A and A1, respectively, also with stable outlooks.
Storrs-based UConn is the flagship of the state system, which S&P considered a credit strength. S&P also referenced significant state support for capital and continued progress implementing Next Generation Connecticut, a $1.55 billion initiative the school started in July 2015.
Offsetting factors, S&P said, include strong competition from private and public colleges and universities throughout the U.S. and particularly in the Northeast, where most students live.
"It's a more competitive environment with enrollment,” said Roy Eappen, a senior analyst with Wells Fargo Securities. “Population is down in the Northeast, including the number of high school graduates that could enroll in higher education.
“Even if you have more out-of-state students and even international students, enrollment is largely based on regional trends.”
S&P also cited continuing large capital needs that have pushed outstanding debt over the past five years on a pro forma basis to $2.15 billion at fiscal year-end 2018 from $1.1 billion at the end of FY2012.
Pullman & Comley LLC is bond counsel. The Law Offices of Joseph C. Reid PA is co-bond counsel. Hardwick Law Firm LLC and Robinson & Cole LLP are representing the underwriters. Day Pitney LLP is the state’s disclosure counsel for the deal.
