BOARD OF REGENTS OF THE UNIVERSITY OF HOUSTON SYSTEM

Transcription

1 This Preliminary Official Statement and the information contained herein are subject to completion or amendment. These securities may not be sold nor may offers to buy be accepted prior to the time the Official Statement is delivered in final form. Under no circumstances shall this Preliminary Official Statement constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. New Issue-Book Entry Only PRELIMINARY OFFICIAL STATEMENT DATED JANUARY 12, 2016 In the opinion of Bond Counsel, interest on the Series 2016A Bonds will be excludable from gross income for federal income tax purposes under existing law subject to the matters described in TAX MATTERS FOR SERIES 2016A BONDS, including the alternative minimum tax consequences for corporations. Interest on Series 2016B Taxable Bonds will not be excludable from gross income for federal income tax purposes under existing law. See TAX MATTERS FOR SERIES 2016B TAXABLE BONDS herein. BOARD OF REGENTS OF THE UNIVERSITY OF HOUSTON SYSTEM $101,145,000* CONSOLIDATED REVENUE AND REFUNDING BONDS, SERIES 2016A Dated Date: February 1, 2016 Interest Accrual Date: Date of Delivery Ratings: Moody s: Aa2 S&P: AA (See Municipal Bond Ratings ) $183,855,000* CONSOLIDATED REVENUE AND REFUNDING BONDS, SERIES 2016B (Taxable) Due: February 15, as shown on inside cover page The $101,145,000* Board of Regents of the University of Houston System Consolidated Revenue and Refunding Bonds, Series 2016A (the Series 2016A Bonds ) and the $183,855,000* Board of Regents of the University of Houston System Consolidated Revenue Bonds, Series 2016B (Taxable) (the Series 2016B Taxable Bonds and, together with the Series 2016A Bonds, the Bonds ), are special obligations of the Board of Regents (the Board ) of the University of Houston System (the System ) issued pursuant to a master resolution, as amended and restated (the Master Resolution ), and a Twenty-Sixth Supplemental Resolution adopted by the Board (the Twenty-Sixth Supplemental Resolution and, together with the Master Resolution, the Resolutions ) and are secured by and payable solely from the Pledged Revenues, including the Pledged Tuition, and certain other legally available funds of the Board, all as more fully described herein. NEITHER THE FULL FAITH AND CREDIT NOR THE TAXING POWER OF THE STATE OF TEXAS (THE STATE ) OR ANY POLITICAL SUBDIVISION OF THE STATE OF TEXAS IS PLEDGED AS SECURITY FOR THE BONDS. NEITHER THE BOARD NOR THE SYSTEM HAS ANY TAXING POWER. See SECURITY FOR PARITY DEBT OBLIGATIONS. The Bonds are issuable only as fully registered bonds, without coupons, in denominations of $5,000 or any integral multiple thereof, and, when issued, will be initially registered in the name of Cede & Co., as registered owner and nominee for The Depository Trust Company, New York, New York ( DTC ), which will act as securities depository for the Bonds. The Bonds will be available to purchasers only in book-entry form. For as long as Cede & Co. is the exclusive registered owner of the Bonds, the principal of, redemption premium, if any, and interest on the Bonds will be payable by the paying agent/registrar (the Paying Agent/Registrar ), initially Wells Fargo Bank, N.A., to DTC, which will be responsible for making such payments to DTC Participants (as defined herein) for subsequent remittance to the owners of beneficial interests in the Bonds. See THE BONDS-DTC and Book-Entry. Interest on the Bonds will accrue from the date of delivery, until maturity or prior redemption, at the respective per annum rates of interest shown on shown on page 2, and will be payable to DTC on each February 15 and August 15, commencing August 15, 2016 for the Series 2016A Bonds and February 15, 2017 for the Series 2016B Taxable Bonds. The Bonds are subject to redemption prior to maturity, as described herein. See THE BONDS- Redemption Provisions MATURITY SCHEDULE, INTEREST RATES, INITIAL YIELDS, AND CUSIP NUMBERS SEE SCHEDULES ON THE INSIDE COVER PAGE The Bonds are offered when, as, and if issued, subject to approval of legality by the Attorney General of the State of Texas and the opinion of Norton Rose Fulbright US LLP, Bond Counsel, Houston, Texas. Bonds in book-entry form are expected to be available for delivery through the facilities of DTC in New York, New York, on or about February 16, BIDS DUE JANUARY 21, 2016, AT 9:30 A.M., C.D.T.* FOR SERIES 2016A BONDS BIDS DUE JANUARY 21, 2016, AT 10:30 A.M., C.D.T.* FOR SERIES 2016B TAXABLE BONDS * Preliminary, subject to change. (see Official Notice of Sale - Advance Modification of Principal Amounts and Post Bid Modification of Principal Amounts )

2 MATURITY SCHEDULE, INTEREST RATES, INITIAL YIELDS, AND CUSIP NUMBERS $101,145,000* CONSOLIDATED REVENUE AND REFUNDING BONDS, SERIES 2016A Maturity Principal Interest Initial Maturity Principal Interest Initial Feb. 15 Amount* Rate Yield CUSIP (1) Feb. 15 Amount* Rate Yield 2017 $560,000 % % 2033 $1,190,000 % % , ,245, , ,310, ,675, ,365, ,960, , ,275, , ,590, , ,930, , ,285, , ,655, , ,060, ,020, ,470, ,070, ,655, ,125, ,895, ,185, ,145, ,240, ,315,000 CUSIP (1) $183,855,000* CONSOLIDATED REVENUE AND REFUNDING BONDS, SERIES 2016B (TAXABLE) Maturity Principal Interest Initial Maturity Principal Interest Initial Feb. 15 Amount* Rate Yield CUSIP (1) Feb. 15 Amount* Rate Yield 2017 $9,690,000 % % 2027 $7,120,000 % % ,515, ,365, ,065, ,640, ,645, ,935, ,100, ,240, ,640, ,235, ,820, ,600, ,480, ,990, ,680, ,390, ,885, ,820,000 CUSIP (1) (1) CUSIP numbers have been assigned to the Bonds by Standard & Poor s CUSIP Service Bureau, A Division of the McGraw Hill Companies, Inc., and are included solely for the convenience of the owners of the Bonds. Neither the System nor the Initial Purchasers are responsible for the selection or correctness of the CUSIP numbers set forth herein. * Preliminary, subject to change. (See Official Notice of Sale - Advance Modification of Principal Amounts and Post Bid Modification of Principal Amounts )

3 THE UNIVERSITY OF HOUSTON SYSTEM Board of Regents Term Expires Name Occupation 31-Aug Tilman J. Fertitta, Chairman Chairman of the Board and CEO, Landry's, Inc Welcome W. Wilson, Jr., Vice-Chairman President and CEO, GSL Welcome Group 2017 Beth Madison, Secretary Insurance Broker 2021 Spencer D. Armour, III Managing Partner, Armada Gas & Oil Company 2017 Roger F. Welder Retired 2017 Durga D. Agrawal President and CEO, Piping Technology & Products, Inc Paula M. Mendoza President and CEO, Possible Missions, Inc Peter K. Taaffe Counsel, The Buzbee Law Firm 2019 Gerald McElvy Retired 2021 Garrett H. Hughey Student 2016 (1) (1) Term expires on May 31 The University of Houston System Administration Name Dr. Renu Khator Jim McSham Dr. Paula Myrick Short Dr. Ramanan Krishnamoorti Eloise Dunn Stuhr Jason Smith Dr. J. Richard Walker Dona Hamilton Cornell Raymond Bartlett Roberta Puryear Title Chancellor Interim Vice Chancellor for Administration and Finance Senior Vice Chancellor for Academic Affairs Acting Vice Chancellor for Research and Transfer Vice Chancellor for University Advancement Vice Chancellor for Governmental and Community Relations Vice Chancellor for Student Affairs and Enrollment Services Vice Chancellor for Legal Affairs and General Counsel Associate Vice Chancellor for Finance Treasurer University Presidents University of Houston University of Houston-Clear Lake University of Houston-Downtown University of Houston-Victoria Dr. Renu Khator Dr. William A. Staples Dr. William V. Flores Dr. Raymond Victor Morgan, Jr. 3

4 No dealer, broker, salesman, or other person has been authorized by the Board, the System, or the Initial Purchasers to give any information or to make any representations other than those contained in this Preliminary Official Statement, and, if given or made, such other information or representations must not be relied upon as having been authorized by any of the foregoing. This Preliminary Official Statement does not constitute, and is not to be used in connection with, an offer to sell or the solicitation of an offer to buy the Bonds in any state in which such offer or solicitation is not authorized or in which the person making such offer or solicitation is not qualified to do so or to any person to whom it is unlawful to make such offer or solicitation. The information set forth in this Preliminary Official Statement has been obtained from the Board, the System, The Depository Trust Company, and other sources which are believed to be reliable, but it is not guaranteed as to accuracy or completeness, and is not to be construed as a representation by the Initial Purchasers or, as to information from other sources, by the Board. Any information and expressions of opinion contained in this Preliminary Official Statement are subject to change without notice, and neither the delivery of this Preliminary Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the Board or the System or other matters described herein since the date hereof. TABLE OF CONTENTS MATURITY SCHEDULE, INTEREST RATES, INITIAL YIELDS, AND CUSIP NUMBERS...ii OFFICIAL STATEMENT SUMMARY...5 INTRODUCTION...7 PLAN OF FINANCING...7 THE BONDS...8 SOURCES AND USES OF FUNDS...12 SECURITY FOR PARITY DEBT OBLIGATIONS...13 MUNICIPAL BOND RATINGS...19 PRO FORMA DEBT SERVICE REQUIREMENTS...20 THE RESOLUTIONS...21 THE SYSTEM...24 TAX MATTERS FOR SERIES 2016A BONDS...35 TAX MATTERS FOR SERIES 2016B TAXABLE BONDS...37 LEGALITY FOR INVESTMENT...40 LITIGATION...40 FORWARD LOOKING STATEMENTS...40 REGISTRATION AND QUALIFICATION OF BONDS FOR SALE...41 CONTINUING DISCLOSURE...41 FINANCIAL ADVISOR...42 VERIFICATION OF ARITHMETICAL AND MATHEMATICAL COMPUTATIONS...43 INITIAL PURCHASERS...43 MISCELLANEOUS...43 APPENDIX A Financial Reports of the System APPENDIX B Form of Bond Counsel Opinion APPENDIX C Summary of Schedules Related to Continuing Disclosure of Information APPENDIX D Summary of the Refunded Obligations 4

5 OFFICIAL STATEMENT SUMMARY The following material is qualified in its entirety by the detailed information and financial statements appearing elsewhere in this Official Statement, reference to which is made for all purposes. No person is authorized to detach this Official Statement Summary from this Official Statement or to otherwise use it without this entire Official Statement (including the appendices). The Issuer... The Issue... Redemption... Authority for Issuance... Source of Payment... Municipal Bond Ratings... Use of Proceeds... Tax Status... The Board of Regents (the Board ) of the University of Houston System (the System ). The $101,145,000* Consolidated Revenue and Refunding Bonds, Series 2016A (the Series 2016A Bonds ) and the $183,855,000* Consolidated Revenue and Refunding Bonds, Series 2016B (Taxable) (the Series 2016B Taxable Bonds and, together with the Series 2016A Bonds, the Bonds ), are dated February 1, 2016 and interest will accrue from delivery, maturing on February 15 in the years and in the principal amounts set forth in the tables on page 2 hereof, subject to prior redemption as described herein. Interest is payable on August 15, 2016 for the Series 2016A Bonds and February 15, 2017 for the Series 2016B Taxable Bonds and on each August 15 and February 15 thereafter until the earlier of maturity or prior redemption. See THE BONDS. The Board reserves the right, at its option, to redeem Bonds, having stated maturities on and after February 15, 2026, in whole or in part in principal amounts of $5,000 or any integral multiple thereof, on February 15, 2025, or any date thereafter, at the par value thereof plus accrued interest from the most recent interest payment date to the date of redemption. See THE BONDS-Redemption Provisions Optional Redemption, and -Scheduled Mandatory Redemption. The Bonds will be issued pursuant to Chapter 55, Texas Education Code, as amended and Chapters 1207 and 1371, Texas Government Code, as amended. See PLAN OF FINANCING. The Bonds are also being issued pursuant to a master resolution establishing a Consolidated Revenue Financing Program for the University of Houston System which was approved and adopted by the Board on April 25, 1990, as amended and restated by resolutions adopted February 16, 1995, June 19, 1997 and May 16, 2002 (collectively, the Master Resolution ), and a Twenty-Sixth Supplemental Resolution to the Master Resolution authorizing the Bonds (the Twenty-Sixth Supplemental Resolution ) which was approved and adopted by the Board on November 19, See THE RESOLUTIONS and SECURITY FOR PARITY DEBT OBLIGATIONS. The Bonds and any other Parity Debt Obligations (as defined herein) are and will constitute special obligations of the Board payable solely from the Pledged Revenues (as defined herein) pledged thereto pursuant to the Master Resolution. NEITHER THE FULL FAITH AND CREDIT NOR THE TAXING POWER OF THE STATE OR ANY POLITICAL SUBDIVISION THEREOF IS PLEDGED AS SECURITY FOR THE BONDS OR ANY OTHER PARITY DEBT OBLIGATIONS. NEITHER THE BOARD NOR THE SYSTEM HAS ANY TAXING POWER. The presently outstanding consolidated revenue debt of the System is rated Aa2 by Moody's Investors Service, Inc. ( Moody's ) and AA by Standard & Poor's Ratings Services, A Division of The McGraw-Hill Companies, Inc. ( S&P ). The System will pay the cost of the ratings from Moody s and S&P. Proceeds from the sale of the Bonds will be used to (i) refund and defease certain outstanding notes and bonds of the System (the Refunded Obligations as more particularly described in Appendix D), (ii) finance the acquisition, purchase, construction, improvement, enlargement, and equipping of property, buildings, structures, activities, services, operations and other facilities, roads, or related infrastructure for or on behalf of the System, including individual campuses of the System, (iii) pay capitalized interest on the Bonds; and (iv) pay the costs of issuing the Bonds and refunding the Refunded Obligations. See SOURCES AND USES OF FUNDS and APPENDIX D Summary of the Refunded Obligations herein. In the opinion of Bond Counsel, under existing law, the interest on the Series 2016A Bonds will be excludable from gross income for federal income tax purposes, subject to the matters described under TAX MATTERS FOR SERIES 2016A BONDS herein, and will not be included in computing the alternative minimum taxable income of individuals or, except as described herein, corporations. Interest on the Series 2016B Taxable Bonds will be included in gross income for federal income tax purposes. See TAX MATTERS FOR SERIES 2016B TAXABLE BONDS. Bond Counsel... Norton Rose Fulbright US LLP, Houston, Texas Financial Advisor... FirstSouthwest, LLC, Houston, Texas * Preliminary, subject to change. (See Official Notice of Sale - Advance Modification of Principal Amounts and Post Bid Modification of Principal Amounts ) 5

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7 PRELIMINARY OFFICIAL STATEMENT Relating to BOARD OF REGENTS OF THE UNIVERSITY OF HOUSTON SYSTEM $101,145,000* CONSOLIDATED REVENUE AND REFUNDING BONDS, SERIES 2016A $183,855,000* CONSOLIDATED REVENUE AND REFUNDING BONDS, SERIES 2016B (TAXABLE) INTRODUCTION This Official Statement, including the cover page and appendices hereto, provides certain information concerning the Board of Regents (the Board ) of the University of Houston System (the System ) $101,145,000* Board Consolidated Revenue and Refunding Bonds, Series 2016A (the Series 2016A Bonds ) and the $183,855,000* Consolidated Revenue Bonds, Series 2016B (Taxable) (the Series 2016B Taxable Bonds and, together with the Series 2016A Bonds, the Bonds ). The Bonds are being issued pursuant to Chapter 55, Texas Education Code, as amended, and Chapters 1207 and 1371, Texas Government Code, as amended. See PLAN OF FINANCING. The Bonds are also being issued pursuant to the Master Resolution and the Twenty-Sixth Supplemental Resolution. The Master Resolution and the Twenty-Sixth Supplemental Resolution are collectively referred to herein as the Resolutions. See THE RESOLUTIONS. This Official Statement contains a description of the Board, the System, the Bonds, the Resolutions and the security for the Bonds and any other Parity Debt Obligations (as defined herein) issued pursuant to the Master Resolution. The descriptions of the Bonds and the Resolutions are summaries only and are qualified in their entirety by reference to complete copies of such documents which may be obtained by prospective purchasers of the Bonds from the Board upon request to the System Administration s offices located at the University of Houston, 4800 Calhoun, E. Cullen Building, Room 128, Houston, Texas , telephone (832) Purposes PLAN OF FINANCING Proceeds of the Bonds will be used to (i) refund and defease certain outstanding notes and bonds of the System (the Refunded Obligations as more particularly described in Appendix D), (ii) finance the acquisition, purchase, construction, improvement, enlargement, and equipping of property, buildings, structures, activities, services, operations and other facilities, roads, or related infrastructure for or on behalf of the System, including individual campuses of the System, (iii) pay capitalized interest on the bonds, and (iv) pay the costs of issuing the Bonds and refunding the Refunded Obligations. Proceeds of the Bonds to be used to refund the Refunded Obligations, together with additional amounts, if any, will be deposited in escrow for that purpose under an Escrow Agreement with Wells Fargo Bank, N.A., as escrow agent for the Refunded Obligations, and retained as cash or invested in U.S. Treasury obligations that will be verified by an accountant to mature on dates and in amounts sufficient to pay the interest on the Refunded Obligations until, and to redeem the Refunded Obligations on, their respective redemption dates. See VERIFICATION OF ARITHMETICAL AND MATHEMATICAL COMPUTATIONS herein. * Preliminary, subject to change. (see Official Notice of Sale - Advance Modification of Principal Amounts and Post Bid Modification of Principal Amounts ) 7

8 THE BONDS Description The Bonds will be issued as fully registered bonds and will be initially registered in the name of Cede & Co., as registered owner and nominee for The Depository Trust Company, New York, New York ( DTC ), which will act as securities depository for the Bonds. The Bonds will be available in book-entry form only as more fully described herein, in denominations of $5,000 or any integral multiple thereof. The principal of, redemption premium, if any, and interest on the Bonds will be payable by the Paying Agent/Registrar for the Bonds to Cede & Co. as the registered owner of the Bonds and DTC will be responsible for making such payments to DTC Participants (as defined herein) for subsequent remittance to the owners of beneficial interests in the Bonds. See THE BONDS- DTC and Book-Entry. The Bonds will mature on February 15 in the years and in the principal amounts set forth on page 2 hereof, subject to prior redemption. The Bonds will bear interest from the date of delivery, until maturity or prior redemption, at the respective per annum rates of interest set forth on page 2 hereof. Interest accrued on the Bonds will be payable to DTC on August 15, 2016 for the Series 2016A Bonds and February 15, 2017 for the Series 2016B Taxable Bonds and on each February 15 and August 15 thereafter until maturity or prior redemption (each an Interest Payment Date ). Interest on the Bonds will be calculated on the basis of a 360-day year composed of twelve 30-day months. DTC and Book-Entry This section describes how ownership of the Bonds is to be transferred and how the principal of and interest on the Bonds are to be paid to and credited by The Depository Trust Company ( DTC ), New York, New York, while the Bonds are registered in its nominee name. The information in this section concerning DTC and the Book-Entry-Only System has been provided by DTC for use in disclosure documents such as this Official Statement. The System believes the source of such information to be reliable, but takes no responsibility for the accuracy or completeness thereof. The System cannot and does not give any assurance that (1) DTC will distribute payments of debt service on the Bonds, or redemption or other notices, to DTC Participants, (2) DTC Participants or others will distribute debt service payments paid to DTC or its nominee (as the registered owner of the Bonds), or redemption or other notices, to the Beneficial Owners, or that they will do so on a timely basis, or (3) DTC will serve and act in the manner described in this Official Statement. The current rules applicable to DTC are on file with the Securities and Exchange Commission, and the current procedures of DTC to be followed in dealing with DTC Participants are on file with DTC. The Depository Trust Company ( DTC ), New York, NY, will act as securities depository for the Bonds. The Bonds will be issued as fully-registered securities in the name of Cede & Co. (DTC s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered certificate will be issued for each maturity of the Bonds, in the aggregate principal amount of such maturity, and will be deposited with DTC. DTC, the world s largest depository, is a limited-purpose trust company organized under the New York Banking Law, a banking organization within the meaning of the New York Banking Law, a member of the Federal Reserve System, a clearing corporation within the meaning of the New York Uniform Commercial Code, and a clearing agency registered pursuant to the provisions of Section 17A of the Securities Exchange Act of DTC holds and provides asset servicing for over 2.2 million issues of U.S. and non-u.s. equity, corporate and municipal debt issues, and money market instrument from over 100 countries that DTC s participants ( Direct Participants ) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities through electronic computerized book-entry transfers and pledges between Direct Participants accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ( DTCC ). DTCC, in turn, is owned by a number of Direct Participants of DTC and Members of the National Securities Clearing Corporation, Fixed Income Clearing Corporation, and Emerging Markets Clearing Corporation (NSCC, FICC, and EMCC, also subsidiaries of DTCC), as well as by the New York Stock Exchange, Inc., the American Stock Exchange LLC, and the National Association of Securities Dealers, Inc. Access 8

9 to the DTC system is also available to others such as both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ( Indirect Participants ). DTC has a Standard & Poor s rating of AA+. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at Purchases of Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC s records. The ownership interest of each actual purchaser of each Bond ( Beneficial Owner ) is in turn to be recorded on the Direct and Indirect Participants records. Beneficial Owners will not receive written confirmation from DTC of their purchase, but Beneficial Owners are expected to receive written confirmations providing details of the transactions, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owners entered into the transaction. Transfers of ownership interest in the Bonds are to be accomplished by entries made on the books of Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the Bonds, except in the event that use of the book-entry system for the Bonds is discontinued. To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC s records reflect only the identity of the Direct Participant to whose account such Bonds are credited, which may or may not be the Beneficial Owners. The Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Redemption notices will be sent to DTC. If less than all of the Bonds within an issue are being redeemed, DTC s practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. Neither DTC nor Cede & Co. will consent or vote with respect to the Bonds unless authorized by a Direct Participant in accordance with DTC s procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the System as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co. s consenting or voting rights to those Direct Participants to whose accounts the Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Redemption proceeds and principal and interest payments on the Bonds will be made to DTC. DTC s practice is to credit Direct Participants accounts, upon DTC s receipt of funds and corresponding detail information from the System or the Paying Agent/Registrar on payable dates in accordance with their respective holdings shown on DTC s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as in the case with securities held for the accounts of customers in bearer form or registered in street name, and will be the responsibility of such Participant and not of DTC, the Paying Agent or the System, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds and principal and interest to DTC is the responsibility of the System, disbursement of such payments to Direct Participants shall be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners shall be the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services as securities depository with respect to the Bonds at any time by giving reasonable notice to the System and the Paying Agent/Registrar. Under such circumstances, in the event that a successor securities depository is not obtained, Bond certificates are required to be printed and delivered. The System may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, Bonds will be printed and delivered. 9

10 Use of Certain Terms in Other Sections of this Official Statement. In reading this Official Statement it should be understood that while the Bonds are in the Book-Entry-Only System, references in other sections of this Official Statement to registered owners should be read to include the person for which the Participant acquires an interest in the Bonds, but (i) all rights of ownership must be exercised through DTC and the Book-Entry-Only System, and (ii) except as described above, notices that are to be given to registered owners under the Order will be given only to DTC. Information concerning DTC and the Book-Entry-Only System has been obtained from DTC and is not guaranteed as to accuracy or completeness by, and is not to be construed as a representation by the System, the Financial Advisor or the Initial Purchasers. Effect of Termination of Book-Entry-Only System. In the event that the Book-Entry-Only System is discontinued by DTC or the use of the Book-Entry-Only System is discontinued by the System, printed Bonds will be issued to the holders and the Bonds will be subject to transfer, exchange and registration provisions as set forth in the Resolutions and summarized under THE BONDS Transfer, Exchange and Registration below. Termination of the Book-Entry-Only System of DTC by the Issuer may require the consent of Participants under DTC Operational Arrangements. Redemption Provisions Optional Redemption. Bonds maturing on or after February 15, 2026, are subject to redemption prior to maturity at the option of the Board, in whole or in part, on February 15, 2025, or any date thereafter, at 100% of the principal amount thereof, plus accrued interest to the redemption date. If less than all of the Bonds are to be so redeemed, the Board may select the maturity or maturities to be redeemed. If less than all of the Bonds of any maturity are to be redeemed, the particular Bonds or portions thereof of such maturity to be redeemed shall be selected by the Paying Agent/ Registrar by lot or other random method in integral multiples of $5,000. In selecting for redemption portions of Bonds in denominations greater than $5,000, each such Bond will be treated as representing that number of Bonds of $5,000 denomination which is obtained by dividing the principal amount of such Bond by $5,000. Scheduled Mandatory Redemption. In the event any of the Bonds are sold as term bonds subject to mandatory sinking fund provisions, the following shall apply. The Bonds of a maturity subject to mandatory sinking fund redemption prior to their scheduled maturity shall be redeemed by the Board, in part, prior to their scheduled maturity, with the particular Bonds or portions thereof of that maturity to be redeemed to be selected by lot or other customary random method (provided that a portion of a Bond may be redeemed only in an integral multiple of $5,000), at a redemption price equal to the par or principal amount thereof plus accrued interest from the most recent interest payment date to the date of redemption, on the date, and in the principal amount set forth in the Official Statement. On or before 30 days prior to each scheduled mandatory redemption date, the Paying Agent/Registrar is required to (i) determine the principal amount of such term bonds that must be mandatorily redeemed on such scheduled mandatory redemption date, after taking into account deliveries for cancellation and optional redemptions as more fully provided for below, (ii) select, by lot or other customary random method, the term bonds or portions of term bonds of the applicable maturity to be mandatorily redeemed on such scheduled mandatory redemption date, and (iii) give notice of such redemption. The principal amount of any term bonds to be mandatorily redeemed on a scheduled mandatory redemption date will be reduced by the principal amount of such term bonds which, by the 45 th day prior to such scheduled mandatory redemption date, either have been purchased in the open market and delivered or tendered for cancellation by or on behalf of the Board to the Paying Agent/Registrar or optionally redeemed and which, in either case, have not previously been made the basis for a reduction as described in this sentence. In addition, if in the exercise of its right of optional redemption, the Board has redeemed part but not all of the term bonds of a particular maturity, the principal amount to be mandatorily redeemed on the next scheduled mandatory redemption date or dates following the date of such optional redemption will be reduced by the principal amount optionally redeemed and which has not previously been made the basis for a reduction as described in this sentence. 10

11 Notice of Redemption Notice of any mandatory or optional redemption identifying the Bonds to be redeemed in whole or in part is required to be given by the Paying Agent/Registrar at least 30 days prior to the date fixed for redemption by sending written notice by United States mail, first class postage pre-paid, to DTC as long as a book-entry registration is used for the Bonds, or if the Bonds subsequently are issued in certificated form, to the registered owners of the Bonds to be redeemed in whole or in part at the address shown on the registration books kept by the Paying Agent/Registrar. See THE BONDS-DTC and Book-Entry. Such notice is required to identify the Bonds or portions thereof to be redeemed by stating the CUSIP number, certificate number, date of issuance, interest rate and maturity date of such Bonds or portions thereof to be redeemed, and is required to state the redemption date, the redemption price, the amount of accrued interest payable on the redemption date, the place at which Bonds are to be surrendered for payment and, if less than the entire principal or maturity amount of a Bond is to be redeemed, the portion thereof to be redeemed. Any notice so given will be conclusively presumed to have been duly given, whether or not the Beneficial Owner or the Owner (as defined in the Twenty-Sixth Supplemental Resolution), as the case may be, receives such notice. When the Bonds have been called for redemption in whole or in part and due provision has been made with the Paying Agent/Registrar to redeem such Bonds, the Bonds or portions thereof so redeemed will no longer be regarded as Outstanding except for the purpose of receiving payment solely from the funds provided for the redemption thereof, and the rights of the Owners to collect interest which would otherwise accrue after the redemption date on any Bond or portion thereof called for redemption will terminate on the date fixed for redemption. Persons Entitled to Payment The Board, the Paying Agent/Registrar and any other person may treat the person in whose name any Bond is registered, initially Cede & Co. as nominee of DTC, as the absolute Owner of such Bond for the purpose of making and receiving payment of the principal and redemption premium, if any, of and interest thereon, and for all other purposes, whether or not such Bond is overdue, and neither the Board nor the Paying Agent/Registrar will be bound by any notice or knowledge to the contrary and neither the Board nor the Paying Agent/Registrar will have responsibility or Bond to any person who holds a beneficial interest in an Bond but whose name does not appear in the Register as the Owner of such Bond. All payments made to the person deemed to be the Owner of any Bond in accordance with the Twenty-Sixth Supplemental Resolution will be valid and effectual and will discharge the liability of the Board and the Paying Agent/Registrar upon such Bond to the extent of the sums paid. See THE BONDS - DTC and Book-Entry. Amounts held by the Paying Agent/Registrar which represent principal of and interest on the Bonds remaining unclaimed by the Owners after the expiration of three years from the date such amounts have become due and payable will be reported and disposed of by the Paying Agent/Registrar in accordance with the applicable provisions of Texas state law, including Title 6, Texas Property Code, as amended. Paying Agent/Registrar Wells Fargo Bank, N.A., Dallas, Texas, has been named to serve as initial Paying Agent/Registrar for the Bonds. The Board has covenanted that at all times while any Bonds are outstanding it will provide a national or state banking association, which will be a corporation organized and doing business under the laws of the United States or any state, authorized under such laws to exercise trust powers and subject to supervision or examination by federal or state authority, to act as Paying Agent/Registrar for the Bonds. The Board has reserved the right to change the Paying Agent/Registrar for the Bonds on not less than 60 days written notice to the Paying Agent/Registrar, so long as any such notice is effective not less than 60 days prior to the next succeeding principal or Interest Payment Date on the Bonds. Promptly upon the appointment of any successor Paying Agent/Registrar, the previous Paying Agent/Registrar is required to deliver the registration books, or a copy thereof, to the new Paying Agent/Registrar and the new Paying Agent/Registrar is required to notify each Owner, by United States mail, first class postage paid, of such change and of the address of the new Paying Agent/Registrar. 11

12 Transfer, Exchange and Registration In the event the Book-Entry-Only System is discontinued, printed certificates will be delivered to the owners of the Bonds and thereafter the Bonds may be transferred, registered and assigned on the registration books only upon presentation and surrender of such printed certificates to the Paying Agent/Registrar, and such registration and transfer shall be without expense or service charge to the Owner, except for any tax or other governmental charges required to be paid with respect to such registration and transfer. A Bond may be assigned by the execution of an assignment form on the Bonds or by other instrument of transfer and assignment acceptable to the Paying Agent/Registrar. A new Bond or Bonds will be delivered by the Paying Agent/Registrar in lieu of the Bond being transferred or exchanged at the designated office of the Paying Agent/Registrar, or sent by United States registered mail to the new Owner at the Owner s request, risk and expense. To the extent possible, new Bonds issued in an exchange or transfer of Bonds will be delivered to the Owner or assignee of the Owner in not more than three (3) business days after the receipt of the Bonds to be canceled in the exchange or transfer and the written instrument of transfer or request for exchange duly executed by the Owner or his duly authorized agent, in form satisfactory to the Paying Agent/Registrar. New Bonds registered and delivered in an exchange or transfer shall be in authorized denominations and for a like kind and aggregate principal amount as the Bond or Bonds surrendered for exchange or transfer. See THE BONDS DTC and Book-Entry herein for a description of the system to be utilized initially in regard to the ownership and transferability of the Bonds. The Board or the Paying Agent/Registrar may require the Owner of any Bond to pay a sum sufficient to cover any tax or other governmental change that may be imposed in connection with the transfer or exchange of such Bond. Neither the Board nor the Paying Agent/Registrar shall be required to transfer or exchange any Bond during the 45- day period prior to the date fixed for redemption of such Bond; provided, however, that such limitation shall not apply to an exchange by the Owner of the unredeemed portion of a Bond called for redemption in part. Defeasance The Resolutions contain provisions for the defeasance of the Bonds in certain circumstances. See THE RESOLUTIONS Defeasance of Parity Debt. SOURCES AND USES OF FUNDS Series 2016A Series 2016B Sources of Funds: Bonds Bonds Par amount of the Bonds Original issue premium/(discount) Total Sources $ - $ - Uses of Funds: Project Fund Refunding Escrow Deposit Costs of Issuance Underwriter s Discount Total Uses $ - $ - 12

13 SECURITY FOR PARITY DEBT OBLIGATIONS Financing Program The Master Resolution established a consolidated financing program for revenue-supported debt obligations of the Board (the Financing Program ) which are issued for the benefit of System institutions which are participating members of the Financing Program (the Members ). The Board anticipates that most future revenue-supported debt obligations of the Board (including the Bonds, but excluding debt obligations of the System supported by State constitutional appropriations) which are issued on behalf of the Members will be issued pursuant to the Master Resolution and one or more Supplemental Resolutions as part of the Financing Program. Any such revenuesupported debt obligations of the Board which are issued pursuant to the Master Resolution and any Supplemental Resolution, including the Bonds and the System s Parity Debt Obligations listed below in Schedule 1, are herein collectively referred to as the Parity Debt Obligations and will be secured equally and ratably by a lien on the Pledged Revenues described below. Pursuant to the Master Resolution, the Board has pledged the Pledged Revenues to the payment of the Parity Debt Obligations, including the Bonds, and to the establishment and maintenance of the debt service fund and any reserve fund which may hereafter be created to secure an issue of Parity Debt Obligations. SCHEDULE 1 Outstanding Parity Debt Obligations The following table sets forth the Parity Debt Obligations outstanding as of August 31, 2015: Par Amount Outstanding as of Parity Debt Obligations August 31, 2015 Consolidated Revenue Variable Rate Demand Bonds, Series 2004 $ 3,190,000 Consolidated Revenue and Refunding Bonds, Series 2008 (1) 97,295,000 Consolidated Revenue and Refunding Bonds, Series ,980,000 Consolidated Revenue and Refunding Bonds, Series 2009A 54,225,000 Consolidated Revenue and Refunding Bonds, Series 2010A (Taxable) 20,185,000 Consolidated Revenue and Refunding Bonds, Series 2010B (BABs) 79,975,000 Consolidated Revenue and Refunding Bonds, Series 2010C 3,845,000 Consolidated Revenue and Refunding Bonds, Series 2011A 234,000,000 Consolidated Revenue and Refunding Bonds, Series 2011B (Taxable) 19,240,000 Consolidated Revenue and Refunding Bonds, Series 2013A 47,060,000 Consolidated Revenue and Refunding Bonds, Series 2013B (Taxable) 96,530,000 Consolidated Revenue and Refunding Bonds, Series ,220,000 Consolidated Revenue Commercial Paper Notes, Series A 68,236,000 Total Parity Debt Obligations $ 853,981,000 (1) Excludes the Refunded Obligations. Preliminary, subject to change. All Parity Debt Obligations, including the Bonds, constitute special obligations of the Board payable solely from the Pledged Revenues (as defined herein) pledged thereto pursuant to the Master Resolution, as amended. NEITHER THE FULL FAITH AND CREDIT NOR THE TAXING POWER OF THE STATE OR ANY POLITICAL SUBDIVISION THEREOF IS PLEDGED AS SECURITY FOR THE BONDS OR ANY OTHER PARITY DEBT OBLIGATIONS. NEITHER THE BOARD NOR THE SYSTEM HAS ANY TAXING POWER. Description of Commercial Paper Authority The System has authority to have outstanding at any time Commercial Paper in aggregate principal amounts of up to $125,000,000. Such Commercial Paper is secured on a parity basis with the Bonds, but the purpose of commercial paper is to better match construction payments with borrowing needs, and the commercial paper is expected to be paid from issuance of additional Parity Debt Obligations. 13

14 The Board has agreed to provide sufficient liquidity to pay the principal of all outstanding Commercial Paper and interest thereon at the Maximum Interest Rate (currently 10%) for the maximum term to maturity authorized for any Commercial Paper, which may not exceed 270 days. The Board will provide liquidity from its investment resources, consisting of same day funds in money market funds and, to the extent that such money market funds do not contain assets sufficient to provide the required liquidity, United States Treasury obligations and Government Sponsored Entity Agency Securities. As of August 31, 2015, the System's investments in cash and cash equivalents, United States Treasury obligations and Government Sponsored Entity Agency Securities available to provide liquidity for the Commercial Paper was valued at approximately $482 million. While the composition of the liquid funds varies over time depending on investment strategies, the composition and value as of August 31, 2015 are representative of the System s capacity at any given time. In addition to providing self-liquidity for the Commercial Paper, the Board provides self-liquidity from the sources identified above for its currently outstanding Consolidated Revenue Variable Rate Demand Bonds, Series 2004, which are currently outstanding in the aggregate principal amount of $3.19 million. See SCHEDULE 8 Investment of Non-Endowed Funds. In addition, the Board agrees to provide or cause to be provided to the holders of the Commercial Paper notice prior to entering into a Liquidity Agreement with regard to its obligations under the Commercial Paper. In addition, no such liquidity facility will be entered into with respect to or supporting the Outstanding Commercial Paper. In the event a Liquidity Agreement is entered into with respect to the Commercial Paper, the Board agrees to provide or cause to be provided notice to the Issuing and Paying Agent and the holders of the Commercial Paper prior to substituting a new Liquidity Agreement or terminating the then existing Liquidity Agreement. Pledged Revenues Pledged Revenues consist of all revenues, incomes, receipts, rentals, rates, charges, fees, grants and tuition levied or collected from any public or private source by a Member, including interest and other income from those funds, and any other revenue funds as defined in Chapter 55, Texas Education Code, as amended (other than Excluded Payments and Restricted Funds), including without limitation (i) the Pledged Tuition and (ii) any or all of the revenues, funds, and balances (other than the Excluded Payments and Restricted Funds described below) now or hereafter legally available to the Board for payment of Parity Debt Obligations, including the Bonds, which are derived from or related to any Member; provided, however, that the following are not included in Pledged Revenues unless and to the extent set forth in a Supplemental Resolution: (a) amounts received by the System or a Member under Article VII, Section 17 of the State Constitution, including the income therefrom and any fund balances relating thereto; and (b) except to the extent so specifically appropriated, general revenue funds appropriated to the Board by the State Legislature. Certain items of revenue are specifically not available to the Board for the payment of the debt service on any Parity Debt Obligations under current State law. Currently, none of the amounts and funds listed below are included as Pledged Revenues: (a) Excluded Payments, which generally consist of any payments to the Board or any Member which, if used to pay any Parity Debt Obligations, would cause the interest on such Parity Debt Obligations to be includable in the gross income of the Owners thereof for federal income tax purposes (except any Parity Debt Obligations which were sold as taxable obligations); and (b) Restricted Funds, which generally consist of revenues derived by the Board or any Member from any gift, grant, contract, loan, or endowment which by the terms and conditions of such gift, grant, contract, loan or endowment are not available to pay the debt service on any Parity Debt Obligations. The Board has covenanted in the Master Resolution that for each fiscal year in which Parity Debt Obligations are outstanding it will establish, maintain, and use reasonable efforts to collect Pledged Revenues, which, if collected, will be at least sufficient to meet all financial obligations of the Board relating to the Financing Program, including all deposits or payments due on or with respect to Outstanding Parity Debt Obligations, including the Bonds, for such Fiscal Year. Reference is made to the following table for a summary of the categories of revenue which under current State law constitute Pledged Revenues. 14

15 Tuition Revenue Bonds During its 2014 legislative session, the Texas Legislature authorized $362,456,000 of additional tuition revenue bonds ( TRBs ), and the System intends to begin issuing all or part of the TRBs in 2016, including $117,000,000 of the Series 2016B Taxable Bonds. The TRBs will be issued as additional Parity Debt Obligations, and will be used to finance specific projects for campuses in the System, as specified by statute. Additionally, proceeds of certain of the Series 2016A Bonds will be used to refund approximately $15,585,000* of previously issued TRBs, and such Series 2016A Bonds will be treated as TRBs. Historically the legislature has appropriated from general revenues of the State an amount sufficient to pay principal of and interest on TRBs during the next biennium, but there is no binding or enforceable legal obligation for the legislature to do so, and unless specifically specified in the appropriation any payments received are not Pledged Revenues for payment of the TRBs, any other Parity Debt Obligations, or the Bonds. Summary of Availability of Revenue Sources Revenues Which Constitute Revenues Which Partially Revenues Which Do Not Pledged Revenues Constitute Pledged Revenues (2) Constitute Pledged Revenues Pledged Tuition State Grants and Contracts State Appropriations-General Revenue (3) Other Fees (1) Local Gifts, Grants and Contracts State Appropriations-Higher Education Sales and Services-Auxiliary Private Gifts, Grants and Contracts Assistance Fund Enterprises Federal Interest Subsidy Payments (4) National Research University Fund Student Service Fees Investment Income Endowment Income Federal Grants and Contracts Sales and Services-Educational Activities (1) Other Fees consist of other fees which the Board is authorized by law to charge to students including, but not limited to, recreational facility fees as established by Section , Texas Education Code, laboratory fees, and enrollment and registration fees. (2) The revenues from these sources will constitute Pledged Revenues only to the extent that such revenues are not restricted by the terms of the grant or contract from being used for debt service for Parity Debt Obligations. A large majority of such revenues are restricted and will not constitute Pledged Revenues. (3) State Appropriations General Revenue are not expected to constitute Pledged Revenues. However, it is expected that the State Legislature will appropriate amounts out of the general revenue fund of the State to reimburse the Board for the payment of portions of the principal of and interest on certain Parity Debt Obligations. However, there is no obligation of the State or of the State Legislature to make any appropriation for this purpose and neither the Parity Debt Obligations nor the Bonds (or any portion of debt service thereon) are general obligations of, or are secured by the full faith or credit of, the State or the System. (4) The System receives interest subsidy payments directly from the Secretary of the U.S. Treasury in relation to the Series 2010B Bonds issued as Qualified Build America Bonds, and any such interest subsidy payments will be allocated solely to pay interest on, or to reimburse the System for the payment of interest on, the Series 2010B Bonds. Rate Covenant The Board is required by State law to, and has covenanted in the Master Resolution that it will, establish, maintain, charge and use reasonable efforts to collect, at each Member, Pledged Revenues which, if collected, will be at least sufficient to meet all financial obligations of the Board relating to the Financing Program, including all deposits or payments with respect to Outstanding Parity Debt Obligations for each Fiscal Year. The Master Resolution requires the Board to increase the amount of the Pledged Tuition when and if necessary to the extent needed to provide Pledged Revenues sufficient to make, when due, all payments and deposits required in connection with Outstanding Parity Debt Obligations. The Board is allowed to fix and collect the Pledged Tuition in any manner, within its sole discretion, and in different amounts from students enrolled at each Member, as long as total Pledged Revenues are at least sufficient to meet all financial obligations of the Board relating to the Financing Program, including all payments and deposits required in connection with Outstanding Parity Debt Obligations. *Preliminary, subject to change. 15