Current through all regulations passed and filed through September 16, 2024
(A)
Policy
statement
This policy provides guidance and
governance on the use of debt financing including long-term debt instruments,
short-term debt instruments, internal loans, synthetic debt instruments, and
capital and operating leases in support of the university's strategic capital
plan. The use of debt is a critical component in the university's ability to
meet its strategic mission and vision.
(B)
Long-term
debt
(1)
Authority
Sections
3345.07,
3345.11,
and
3345.12
of the Revised Code give authority to the board of trustees to approve
issuances of debt obligations for construction and renovation of educational,
housing, dining, and auxiliary facilities, or to refund previously issued debt
obligations.
(2)
Management objectives
(a)
Obtain the lowest
cost of capital based on the current market conditions.
(b)
Manage the
repayment schedule of the debt in order to preserve debt capacity and
flexibility over the long-term while also meeting the liquidity needs of the
university.
(c)
Manage the credit profile of the university to ensure
the highest credit rating possible to:
(i)
Maintain access
to the capital markets.
(ii)
Obtain favorable costs of capital, flexibility, and
favorable terms.
(d)
Closely match the
average age of debt service to the average age of facilities.
(e)
Comply with
applicable state and federal laws.
(f)
Comply with
contractual debt covenant obligations.
(3)
Access to and
approval of debt financing
(a)
All debt issuances need the recommendation of the
executive vice president for finance and administration, or equivalent position
or designee, and the president; and the approval of the board of trustees
through a board resolution.
(b)
All capital
projects considered for debt financing need to be approved through the
university's current capital planning and approval process.
(c)
Capital projects
considered for debt financing would need to demonstrate most of the
following:
(i)
The project meets a strategic initiative of the university
and is consistent with the university's mission and vision.
(ii)
The project has
a business plan approved by the executive vice president of finance and
administration, or equivalent position or designee.
(iii)
The project has
a favorable expected return on investment or provides for significant future
cost savings.
(iv)
A viable internal debt service plan has been
established.
(v)
Other financing options such as state appropriations,
philanthropy, expendable reserves, and grant funding are not available,
preferred, or feasible.
(4)
Interest
rates
(a)
The
university will prudently manage the debt structure to provide proper balance
between fixed rate and variable rate debt. The university recognizes the
historical benefits of variable rate debt providing lower cost of capital, but
understands the volatility and market risk of variable interest rates. The
university will restrict use of variable rate debt to no more than forty
percent of the university's outstanding debt, not including variable rate debt
associated with a synthetic fixed rate swap agreement or similar derivative
instrument that provides a hedge to the variable rate risk.
(b)
The university is
permitted to enter into interest rate swap agreements and other derivative
instruments to mitigate interest rate risk through hedging. The university is
not permitted to enter into these types of instruments for speculative
purposes.
(5)
Payment of internal debt service
(a)
The benefiting
auxiliary unit shall be responsible for the repayment of debt and the
associated costs.
(b)
A memorandum of understanding ("MOU") between the
office of finance and the benefiting unit should specify the terms of the
internal debt service.
(6)
Refinancing of
debt
The treasurer, or equivalent position,
should monitor the market and look for favorable conditions to refinance
previously issued debt to realize savings on debt service. The treasurer, or
equivalent position, should consider refinancing if the net present value
savings is at least three percent.
(7)
Letter of
credit
The university may decide to obtain a
letter of credit from a financial institution relating to a bond issuance to
enhance the credit worthiness of the issuance and result in lower costs of
capital.
(8)
Financing capital through third-party issued debt
The university may allow a third-party
to finance, construct, manage, and/or own a capital project utilizing a
privatization model. These arrangements may require the university to ground
lease land to a third-party. These arrangements may also require the creation
of a non-profit foundation affiliated with a third-party to issue the long-term
debt. The privatization model may be advantageous due to third-party expertise,
third-party access to capital, and university debt capacity considerations.
These projects must follow the same approval process as direct university debt
financing.
(C)
Short-term
debt
The university may require short-term
financing or bridge financing for capital projects in anticipation of
philanthropy or planned issuance of long-term debt. The interim financing can
provide the university with flexibility in the timing and structuring of the
long-term debt financing. This short-term financing may also be appropriate for
financing equipment and short-term operational needs.
(D)
Internal loans or
bridge financing
(1)
Internal loans may be granted in special circumstances
to colleges/areas for capital projects. The governing criteria may include but
are not limited to one or more of the following.
(a)
The project meets
a strategic initiative of the university and are consistent with the
university's mission and vision.
(b)
The funding of
the project is pledged by donor commitments with multiple-year payment plans,
including interest as approved by the executive vice president for finance and
administration or equivalent position.
(c)
The funding of
the project is guaranteed by the college/area through operations and/or
carry-forward.
(2)
A memorandum of understanding ("MOU") should specify
how the debt service will be paid and be executed by a dean/vice president and
the executive vice president for finance and administration, or equivalent
position or designee.
(3)
Principal is expected to be paid in regular
installments.
(4)
Debt service schedule generally should not exceed five
years.
(E)
Capital leases and operating leases
(1)
All leases
(operating and capital) above one hundred thousand dollars must be approved by
the executive vice president for finance and administration, or equivalent
position or designee.
(2)
Leases with a notional amount greater than established
policy thresholds require the approval by the board of trustees. See latest
competitive procurement authority and approval board
resolution.
(3)
Leases with a notional amount greater than established
policy thresholds require competitive procurement methods. See latest
competitive procurement authority and approval board
resolution.
(4)
The determination of capital lease or operating lease
classification will be made by the office of finance.
