DALLAS - The Texas State University System plans to refund a trio of issues for strong present-value savings, but the $36.8 million in revenue bonds cannot be sold until the state Supreme Court rules on the legality of the higher education funding system.

Advisers on the refundings for Sam Houston State University and Southwest Texas State University say that a May 1 injunction prevents the sale of any bonds, even though the refunding is expected to generate an average present-value savings of 6%.

The Texas Bond Review Board last week approved the deals, and Houston-based Masterson Moreland Sauer Whisman Inc. is ready to lead their pricing. But first the high court must rule in a 1989 case brought by the League of United Latin American Citizens.

Like the lawsuit facing the state's elementary and secondary schools, the group's suit charges that the public universities' current funding system illegally shortchanges students along the state's border with Mexico.

A lower court judge agreed two years ago and ruled the system unconstitutional. The high court heard arguments last October but has not yet issued an opinion.

The Texas attorney general's office will not approve state university bonds for sale until the court rules and the injunction is lifted, a spokesman confirmed.

The policy does not affect junior colleges or student loan authorities, neither of which are part of the Texas State University System, but it applies directly to systems that include Texas A&M and the University of Texas. Neither university currently has plans for long-term debt sales.

Chuck Kobdish, partner at McCall, Parkhurst & Horton in Dallas, the bond counsel for the refundings, said that once the injunction is lifted with the release of the court's ruling he believes the bonds will be clear for sale. "We expected a ruling out of the court last week," he said Friday. "We are expecting it any minute now."

The court had delayed a ruling until the Texas Legislature completed its spring session. Lawmakers included $400 million in new funding for border-area universities to address concerns raised by plaintiffs.

"We think that what the Legislature has provided may help resolve this," said Vince Matrone, senior vice president and managing director of public finance at Rauscher Pierce Refsnes Inc. in Dallas, financial adviser on the issues.

State officials said that even though the Texas State University System has to wait for the court's decision, they do not believe the delay will erode the high present-value savings expected from the refunding of bonds originally sold as early as 1974.

Matrone said the net present-value savings will range from an estimated 4.8% to 6.3% on the three deals with an estimated $1.9 million in future interest costs being saved through lower interest costs. "These are plain-vanilla issues being done purely for the savings," he said.

All three issues are expected to be insured by AMBAC Indemnity Corp. and if so will be rated triple-A.

The plan approved yesterday by state officials calls for Sam Houston State University to sell $6.86 million in bonds to refund debt sold in 1974,1984, and 1988. Those combined fee revenue bonds mature in 1994 through 2005 and have outstanding coupons averaging 5.4% to 7.7%. Matrone said the current market could result in new interest rates ranging from 2.6% to 5.25%.

The transaction is expected to generate $298,370 in present-value savings, or 4.816%.

Southwest Texas State University plans to sell two issues: an $11.03 million in utility revenue bonds and $18.9 million in student housing system revenue bonds.

Proceeds from the first sale will be used to advance refund series 1987A bonds scheduled to mature from 1998 to 2004. The bonds are callable on Aug. 1, 1997. The transaction is expected to generate $565,240 or 5.797% in present-value savings.

Funds from the second issue would be used to advance refund series 1989 bonds scheduled to mature from 1999 through 2010. Those bonds are callable on Oct. 1, 1998. The deal is expected to save $1.065 million, or 6.327% of the principal amount issued.

Historically, issuers have often targeted savings of 5% or more when assessing a refunding. However, when interest rates are low, the standard can fall as low as 2%. Texas has no minimum savings requirement.

"This is considered very good," said Jim Thomassen, executive director of the Bond Review Board, of the projected savings. "I think the board is pleased with that."

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