Long-challenged certificates
of participation
issued December 2005
In mid-December, Colorado went to market with a deal that had been
two years in the making – $192.3 million of certificates of
participation that will finance educational facilities for the University of Colorado Denver at its Fitzsimons
campus in Aurora.
The Colorado General Assembly approved the plan of issuance for the
University of Colorado Denver during its regular
legislative session in 2003 as part of an overall authorization,
totaling about $300 million. That amount also included borrowing
for a new facility for the state Department of Corrections.
The Colorado Criminal Justice Reform Coalition filed a lawsuit against
the authorization in Denver District Court, alleging that the proposed
issue violated the requirement under the state's Taxpayer Bill of
Rights for voter approval of multi-year debt obligations. The group
also argued that lawmakers did not investigate alternatives to incarceration
before approving the correctional facility debt.
"
In October of 2003, a prison rights organization filed a lawsuit
claiming that the authorization was invalid because it included funding
for two separate functions," said Bill Dougherty, president
of BD Advisors, financial adviser for the University of Colorado
System. "They also challenged the issuance of COPs, which they
claimed violates provisions prohibiting multi-year debt in the state
constitution."
The plaintiffs lost at the trial court level and in an appeal in
April. The appellate court ruled that because debt service for the
lease-purchase agreement must be approved each year by the General
Assembly, the issue does not constitute a multi-year obligation of
the
state. In October, The Colorado Supreme Court decided to allow the
appellate court's ruling to stand.
"
This went all the way to the Supreme Court," Dougherty said. "We
had to wait until we had a ruling before moving forward with the
issue, but in October of this year, the court system denied all of
the complaints of the plaintiffs."
The go-ahead paves the way for UCD’s completion of its Anschutz Medical Campus’ move to Fitzsimons in Aurora.
Dougherty said the COP issue is also unusual because while the deal
will carry the credit of the state of Colorado, the university's
Board of Regents has overseen the structuring of the deal.
The payments will come from the state, but the regents put the deal
together, and the university will operate its schools – dentistry,
medicine, nursing, pharmacy and the graduate school - with its own
money.
The lease-purchase agreement requires the state to make annual payments
of $13.2 million on the debt beginning in fiscal 2007.
"
Fitzsimons is a 578-acre site, with 227 of those deeded to the Board
of Regents of the University of Colorado at no cost," said Ann
Gifford, a first vice president with Stifel, Nicolaus & Co.'s
Hanifen Imhoff Division, lead manager for the transaction. “The
UCD campus at Fitzsimons is going to be a state-of-the-art health
sciences campus, including not only the University of Colorado Denver, but
also University of Colorado Hospital and The Children's Hospital."
University of Colorado Hospital, which is affiliated with the University
of Colorado, already has inpatient and outpatient facilities open
on the Fitzsimons campus, with more services scheduled to be operational
in coming months. The Children's Hospital is scheduled to open at
the Fitzsimons campus in 2007.
Both hospitals are using cash on hand and donations to fund most
of their construction.
"
The bulk of the remainder of the site will become a bioscience park," Gifford
said. "This is an excellent location for the University – there
will be a lot of opportunities for the students, and this is also
in a great physical location, located along the I-70 corridor and
close to Denver International Airport."
Proceeds from the COP issue will finance seven buildings, all of
which will be completed by 2009. The facilities include academic
offices and classrooms, a library, administration offices, and support
services.
Mike Imhoff, a managing director at Stifel Nicolaus and manager of
fixed-income trading, said the certificates are currently structured
with the first maturity due on May 1, 2006.
"
Maturity dates then shift to Nov. 1 starting in 2006, with serials
running from 2006 to 2026," Imhoff said. "There is also a term
bond that comes due in 2030."
The deal has won an underlying rating of AA-minus from Standard & Poor's,
the only agency to rate the deal's underlying credit. It will be
insured by MBIA Insurance Corp.
"
Our initial feedback is that the market sees the big block size toward
the end of the deal as appealing," Imhoff said. "In addition,
the strength of the credit is attractive, especially with the passage
of Referendum C solidifying the state's budget. The deal was also
taken all the way to the Supreme Court, which is another area of
strength for the debt."
