LOS ANGELES--The Regents of the University of California will switch to a negotiated sale -- rather than a competitively bid deal -- and soon move forward with a refunding that was postponed last month amid investor complaints.
Hal Geiogue, an assistant California treasurer, confirmed last week that the regents now plan to price the issue in early- to mid-December.
The treasurer's office halted the $353.5 million refunding on Nov. 19 -- when it initially planned to accept bids -- after some institutional investors said they were led to believe in 1989 that the regents had no intention of calling the old bonds until later this decade.
The unusual situation stemmed from a 1989 conference telephone call, according to one California-based portfolio manager. That call, held in connection with a previous refinancing of the regents' Series 1986 multiple-purpose projects issue, included participation by large investors and representatives of the university system, the fund manager said.
That phone conversation left investors with the understanding that the regents did not plan to exercise a call of the old bonds until 1999, even though the bond documents stated that the officials could redeem the debt earlier if they chose to.
The investors voiced their displeasure when the state prepared to sell the new refunding issue last month. State officials decided to postpone the sale when it appeared investors would impose a penalty on the pricing because of their dissatisfaction.
Mr. Geiogue said public officials have "clarified that there was a misunderstanding," adding that there probably is no way all the parties will be "totally pleased" with the outcome. Nevertheless, the state intends to sell the bonds and hopes to find the best structure that satisfies the regents and investors alike, he added.
Mr. Geiogue said a negotiated underwriting seemed the best solution for placing the bonds under the circumstances, especially given the lack of flexibility and potential for a pricing penalty in a competitive deal.
The portfolio manager said a "difference of opinion" definitely arose over the new refinancing plan, gives what some institutional investors understood after the 1989 phone conversation.
After two years have passed, however, solving the problem is akin to "how do you unsramble an egg?," the manager added.
Rather than debate who is right orewrong, the fund manager said the easiest option probably entails placing the bonds "at a rate that seems plausible to the issuer and the buyers."
The manager continued that the regents should "have to give [investors] something" that will entice buying interest, adding that his fund will consider a purchase "if the rate was right."
The fund manager added that nobody is debating the regents' legal ability to refinance the bonds.
J.P. Morgan & Co. will serve as lead manager on the refunding, Mr. Geiogue said, adding that E.J. De La Rosa & Co. will serve as a co-senior manager. Mr. Geiogue said last Wednesday that it is still too early to know exactly how the deal will be structured. Various state officials will likely hold further discussions today about potential dates for pricing, an underwriter noted Friday.
