Progress Report - September 2002

Since the last update, several major projects have bid successfully, including the B.B Dougherty Renovation at Appalachian State ($1.3M), Film Archives Building at the North Carolina School of the Arts ($2.2M), Central Utilities Plant at North Carolina State University ($15.9M), and Health Sciences Library Renovation at UNC-Chapel Hill ($12 M).

In addition to the continuing pace of work coming under award, the number of projects moving to completion is increasing. Projects completed since the last report include Bryan Center Upgrades at the North Carolina School of Science and Math and Undergraduate Science Teaching Labs – Phase 1 Greenhouses at North Carolina State University. The first formal ribbon-cutting ceremony for a bond project was held on August 19 at UNC-Chapel Hill to celebrate the completion of the R.B. House Library Renovations.

Currently, more than 62 percent of bond projects are underway with a commitment of bond funds totaling more than $567 million. An additional 6.9 percent of projects equaling $40 million is committed to construction or land acquisitions already completed. Together, these commitments mean that the bond program has engaged approximately 24 percent of the program’s total dollar value and nearly 70 percent of all projects.

State’s Bond Rating Downgraded

In August, Moody’s Investor Service downgraded North Carolina’s credit rating one step, from AAA to Aa1 with stable outlook. Moody’s cited the State’s continued budget pressure, its reliance on non-recurring revenues, and its weakened balance sheet as reasons for the downgrade. The State continues to retain an AAA rating with Standard and Poor’s and Fitch.

North Carolina is not alone. Since April 2001, seven states across the nation have received credit rating downgrades. The impact of a downgrade from an AAA to Aa1 translates into about a .05 percent increase in true interest costs in the tax-exempt bonds marketplace. Fortunately, the impact on debt service requirements for the UNC Bond Program will be minimal. During the last week of August, bonds rated AAA sold for 4.021 percent while bonds rated Aa1 sold for 4.079 percent. The additional cost in debt service would total $292 per million dollars in bonds per year over the course of the bonds.

University Bonds Remain Strong

In light of the State’s bond-rating downgrade, it is important to note that revenue and special obligation bonds issued by the Board of Governors remain strong and competitive. Recent conversations with bond underwriters and bond traders revealed that they believe that investors will continue to view UNC bonds favorably, and they expect no impact from the State's downgrade on Board-issued debt.

As further evidence of the confidence of the marketplace in University bonds, only two days after Moody's downgraded the State's bond rating, it upgraded the rating for the University of North Carolina at Asheville from A3 to A2. UNC Asheville sold housing bonds on September 3 and 4 at less than 4.5 percent.