July 10-11, 2003

ITEM 120-2001-R0703  Authorization to Proceed, Series G 2003 Facilities Revenue Refunding Bond Issue; Montana State University

THAT: The Board of Regents of the Montana University System adopts the Bond Resolution for the Series G 2003 Revenue Bonds for Montana State University and authorizes Montana State University and the Commissioner of Higher Education of the Montana University System to proceed with the issuance of the Series G 2003 Revenue bonds.

Montana State University-Bozeman
Facilities Revenue Refunding Bonds $19,500,000

EXPLANATION: This authorization to proceed with the issuance of the Series G 2003 Facilities Revenue Refunding Bonds is subject to final approval by the University and the Commissioner of Higher Education of the Montana University System. This also authorizes the Chair of the Board of Regents, the Vice Chair of the Board of Regents, the Commissioner of Higher Education, the President of Montana State University, and the Acting Vice President for Administration and Finance of Montana State University-Bozeman to execute such documents as may be required to consummate the issuance of the Series G 2003 Facilities Revenue Refunding Bonds.

The significant decline in interest rates over the past several months has created an opportunity for MSU to realize significant savings in its debt service obligations for two series (1993A & 1994C) of its bond indenture program.

The Series A 1993 bonds, totaling $24,911,720, was used not only to refund a series of outstanding, higher interest bonds, but to also create new funding to: construct housing units; update the campus outdoor lighting system; extend the central video/data network to auxiliary buildings; and, pay the Housing System share of the campus utility tunnel.

Of the $2,890,000 Series C 1994 bonds for MSU-Northern, $1,450,000 was utilized for auxiliaries facilities renovation projects, and the remainder was deposited into an irrevocable trust with an escrow agent to refund the outstanding Series A 1987 bonds.

Given the current interest rates, MSUs underwriter projects debt service savings of approximately $2,201,470 if MSU replaces the outstanding Series A 1993 bonds (payable from November 2003 through November 2016) and the Series C 1994 bonds (payable from November 2003 through 2014) with new, lower cost, bonds. The net present value savings of doing so is calculated to be approximately $1,766,757.

This refunding will result in no "new" bond proceeds, nor are there any new projects or Indenture reserves created. As with the refinancing of a home, savings are reflected in lower repayment costs over the life of the outstanding bonds.

The Series A 1993 bonds are first eligible for refunding without a premium on November 15, 2003, or up to 90 days prior to that time. The callable portion of the Series A 1993 revenue bonds amounts to $16,370,000 with original maturities between 2003 and 2006, and 2012 and 2016, with interest rates between 4.45% and 5.05%.

The Series C 1994 bonds are first eligible for refunding without a premium on November 15, 2004, or up to 90 days prior to that time. The Series C 1994 bonds amounting to $1,905,000 are callable for original maturities between November 2004 and 2014, with interest rates ranging from 2.00% to 3.25%. The refunding issue is characterized as follows:

1.       Face value $18,275,000 ($16,370,000 plus $1,905,000 MSU-N)

2.       Approximately 0.5% of face value set aside for a Debt Service Reserve, if required

3.       13 2 yr maturity and 12 yr maturity (MSU-N)

4.       Interest rates ranging from 1.00 % to 3.55 %

5.       Aaa Insured Credit Rating, with confirmation of historical underlying A ratings from Moody's and Standard & Poor's

6.       Bond insurance - to be determined

7.       Present value savings, net of issuance costs, of approximately $1,766,757 ($1,564,938 and $201,819 MSU-N)

 

ATTACHMENTS: Series G 2003 Facilities Revenue Refunding Bonds Resolution