DALLAS -- The Texas Supreme Court has cleared the state's universities to refund bonds and roll over $108 million of commercial paper even though the justices still have not ruled on a constitutional challenge to the state's higher education funding system.
In a special ruling issued late Wednesday, the court made it clear it will take no action affecting the validity of any obligations sold between now and the time a final decision is rendered.
Bond lawyers for the state's public universities had advised their clients not to issue debt until either the court ruled in the case, LULAC v. Richards, or until justices provided the kind of assurances they did this week.
"Counsel asks this court to grant relief to ensure that the bonding efforts of the universities can continue unimpeded," the court wrote in its opinion. "We grant this request."
Bond lawyers say the clarification clears the way for a $36.8 million refunding of three issues by the Texas State University system. And it will enable the University of Texas and Texas A&M University systems to proceed with normal rollovers of their commercial paper programs beginning next week, they say.
"This clears up the legal questions we had," said Rick Porter, a partner at McCall, Parkhurst & Horton in Dallas, the bond counsel to all three university systems.
Porter last week in a letter asked the Texas attorney general's office to request the assurance from the court before it began a two-month summer hiatus during which rulings historically have not been issued. The ruling on Wednesday was a direct response to the letter.
With the court now in recess, the justices probably will not rule on the case until after Labor Day. Even though the attorney general's office had earlier said the universities could sell their obligations, bond lawyers had declined to write clean opinions for the issues because of concerns that the Supreme Court could later issue a final ruling that would retroactively cover bonds sold after May 1.
The lawyers had hoped for a ruling before the hiatus on the 1989 lawsuit brought by South Texas residents who allege the state's system for funding higher education shortage against their region. They claim the funding formula discriminates against them and is therefore unconstitutional.
A state court judge last year ruled the funding system unconstitutional, but Texas officials appealed the decision.
The uncertainty left proposed debt sales in limbo.
Wednesday's ruling, however, allows the state's two largest university systems to issue new paper as their outstanding obligations come due. Officials had prepared a contingency plan to begin a cash defeasance of their commercial paper as it came due.
The University of Texas has $58.2 million of commercial paper that begins maturing July 12. Texas A&M officials have $50 million in paper that comes due beginning Oct. 4. Proceeds from the programs have been used largely as interim financing for capital projects.
Chuck Kobdish, the partner at McCall Parkhurst handling the $36.8 million of Texas State refundings, said he must revise the issues' disclosure statements to reflect the court's ruling.
Advisers to Texas State say they could know by Friday when the attorney general's office will clear the bonds for sale. For now, they are anticipating a sale during the week of July 12 by a syndicate led by Masterson Moreland Sauer Whisman Inc. in Houston.
It is not yet certain how the delay may have affected the projected average 6% net present value savings expected to be generated by the Texas State deal.
But Vince Matrone, senior vice president and manager of public finance at Rauscher Pierce Refsnes Inc. in Dallas, the financial adviser to Texas State, said the delay may have helped.
"The savings are just a tad better than when we first presented the deal," Matrone said.
