Ohio Administrative Code › Title 3364 - University of Toledo › Chapter 3364-40 - Fees and Reimbursements › Section 3364-40-25 - Debt management

Current through all regulations passed and filed through July 1, 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.