Building with Debt

Financing Capital Projects Training

March 3, 2004
 Previous Lending Structure

The University historically had issued debt and passed through the cost to the individual
schools and divisions. As such, transactions were dictated by current market conditions
and individual division budgets:

 Debt administered on a project and issue Investors

basis.
Variabl 4.50%- 4.10%- 4.00%-
 Each division bears cost of borrowing at e 5.60% 5.90% 5.50%

market rates at time of borrowing Central

Central Administration
Administration
(winners and losers).

 Capital funding strategies vary across Variabl 4.50%- 4.10%- 4.00%-

e 5.60% 5.90% 5.50%
divisions.
Athletic
Athletic Parking
Parking A&S
A&S Med.
Med. Ctr.
Ctr.
 Capital planning is project based, and ss
future borrowing costs are unpredictable.
 Current Lending Structure and
Funding Sources

Starting in 2003, the University now has a pool of funds that the Finance staff will
manage to ensure that there are funds available when needed based on the draw
schedules for all projects.
Taxable Tax-Exempt
Short Term Short Term Long Term
Borrowing Internal Funds
Borrowing Borrowing

Pooled Funds Managed by Finance

Athletics Parking A&S Med Center

 University Debt Management

Before March 2003 issuance After March 2003 issuance

(40% variable rate, 60% fixed rate)

1. Long term bonds ($337M) 1. Long term bonds ($438M)

 82% fixed rate
 99% fixed rate
 18% variable rate
 1% variable rate
 Mixed maturity
 Maturity of 20 years
 Potential for swaps

2. Bridge financing
2. Bridge financing  Short-term borrowing
 Project deficits  Internal loans
 Internal loans
3. Issuances are pooled; projects borrow
3. Individual projects associated with from the pool
specific issuances
 Benefits of Blended Rate Lending
Structure

 Stabilize cost of capital.

Investors
 Greater internal loan flexibility (i.e.
prepayment).
Variable Fixed

 Improve predictability of capital costs for Bond

Bond Pool
Pool
budget and planning purposes.

 Provide consistency of borrowing rates 4.75% 4.75% 4.75% 4.75%

across schools and divisions.
Athletics
Athletics Parking
Parking A&S
A&S Med.
Med. Ctr.
Ctr.

 De-link external and internal debt structures

to optimize lending rates and take
advantage of optimal market structures.

 Equitable distribution of refinancing savings.

 Repaying Borrowed Funds

• Internal Payments from Borrowing Units

– Units begin payment the first month that financing is
used in their project’s business plan
– Level monthly payments will consist of principal and
interest based on a 20 yr amortization of total financing
costs
– Interest will be at an blended borrowing rate (currently
4.75%)
– Investment & Tax Services will make a GL entry each
month from the Oracle project identified as source of
repayment
 University Debt Management
Blended Rate

I. Components of blended rate

1. Fixed rate interest costs
2. Variable rate interest costs
3. Reserve for interest rate volatility
4. Swap costs
5. Internal loan cost of capital
6. Administration of bond pool and monitoring of
markets (0.1%)

II. Annual review of blended rate for potential resetting

Questions