Insurance Boosts Rating on UC Bonds
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The University of California used private insurance to lower the interest cost on $918 million of tax-free bonds it sold Tuesday.
The deal hinged primarily on generating cost savings from paying off existing debt, which made the size of the offering dependent on market interest rates.
The UC system had planned to issue as much as $1.3 billion in bonds, then cut the deal’s size to about half that. A rally in long-term bonds Tuesday, which pushed yields lower, allowed the system to boost the size of the offering.
Most of the bonds were covered by private insurance against default, to provide a top AAA rating.
The bonds were sold in varying maturities. The issue maturing in 15 years yielded an annualized 4.58%, slightly less than the average yield for insured muni debt of that term, according to Municipal Market Data.
Brokerage firm Lehman Bros. managed the UC bond sale.
Without the insurance, the bonds would have had an Aa2 rating from Moody’s Investors Service and an AA-minus rating from Standard & Poor’s.
Even so, the university’s rating remains five levels higher than the state’s own general obligation grade on Standard & Poor’s scale.
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