Hicks Hall, Building 53
Phone: (904) 620-2923
Fax: (904) 620-1482
The Need for and Purpose of Debt Management Guidelines
University of North Florida (“UNF”) and its direct support organizations
(“DSOs”) have funded significant investments in infrastructure, such as buildings,
equipment, land, and technology, to meet the needs of a growing student population
and to upgrade and maintain existing capital assets. A significant amount of the
funding for this investment in infrastructure has been provided through the issuance
of debt for the benefit of UNF and by its DSOs.
The purpose of these guidelines is to confirm that UNF and its
DSOs must engage in sound debt management practices and, to that end, the University
Board of Trustees (“UBOT”) has formalized guiding principles for the issuance of
debt by UNF and its DSOs. Each state university shall adopt a debt management
policy which is consistent with these guidelines and which shall be approved by
The following guidelines set forth guiding principles regarding
UNF and DSO debt-related decisions relating to:
a) The amount of debt which may prudently be
b) The purposes for which debt may be issued.
c) Structural features of debt being issued.
d) The types of debt permissible.
e) Compliance with securities laws and disclosure
f) Compliance with federal
tax laws and arbitrage compliance.
These principles facilitate the management, control and oversight
of debt issuances, for the purpose of facilitating ongoing access to the capital
markets which is critical to the financing of needed infrastructure.
In furtherance of this objective, the provisions of these guidelines
shall be followed in connection with the authorization, issuance and sale of UNF
and DSO debt. However, exceptions to the general principles set forth herein may
be appropriate under certain circumstances. Also, additional guidelines and policies
may be necessary as new financial products and debt structures evolve over time.
For purposes of these guidelines:
i) “debt” means bonds, loans, promissory notes, lease-purchase
agreements, certificates of participation, installment sales, leases, or any other
financing mechanism or financial arrangement, whether or not a debt for legal purposes,
for financing or refinancing, for or on behalf of UNF or its direct support organizations, the acquisition, construction, improvement or
purchase of capital outlay projects;
ii) “capital outlay project”
means (i) any project to acquire, construct, improve or change the functional use of land, buildings,
and other facilities, including furniture
and equipment necessary to operate a new or improved building or facility, and (ii)
any other acquisition of equipment or software; and
iii) “financing documents”
means those documents and other agreements entered into by UNF or its DSOs establishing
the terms, conditions and requirements of the debt issuance.
enterprise” means any activity defined in section 1011.47(1), Florida Statutes,
and performed by a university or a
Concept of Affordability
One of the most important components of an effective debt management
policy is an analysis of what level of debt is affordable given a particular
set of circumstances and assumptions.
More comprehensive than simply an analysis of the amount of debt that may
be legally issued or supported by a security pledge, the level of debt should be
analyzed in relation to the financial resources available to UNF and its DSOs on
a consolidated basis, to meet its debt service obligations and provide for
operating the university.
An analysis of debt affordability should address the impact of
existing and proposed debt levels on an issuer’s operating budget and offer guidelines
or ranges to policymakers for their use in allocating limited resources within
Debts That May Be Issued Without Board of Governors’ Approval
The following types of financings may be engaged in by UNF and
its DSOs, as applicable, without or Board of Governors (“BOG”) approval:
o UNF and its DSOs may finance the acquisition of equipment and
software provided such financings are accomplished in accordance with the deferred-purchase
provisions in Chapter 287, Florida Statutes.
o DSOs may finance the acquisition of equipment and software
financings provided the overall term of
the financing, including any extension,
renewal or refinancings, hereof, does not exceed five years
or the estimated useful life of the equipment or software, whichever is shorter.
o DSOs may issue promissory notes and grant conventional mortgages for the acquisition
of real property.
o UNF and its DSOs debt secured solely with gifts, donations
and pledges of gifts so long as the maturity of the debt, including extensions, renewals and refundings, does not exceed five years and so long as the facilities
being financed have been included in UNF’s five-year capital improvement plan
that has been approved by the BOG
o Refundings for debt service savings where final maturities
are not extended.
o Financing of any projects approved by the BOG or UBOT prior
to, or existing, as of January 26, 2006.
o Fully collaterized lines of credit intended to be used for
temporary cash flow needs.
Performance-Based Contracts, in accordance with the provisions of section
1013.23, Florida Statutes, not to exceed $10,000,000.
o UNF may borrow up to
$20,000,000 from a university DSO on a non-recourse basis to finance a capital project. The term of the borrowing may not exceed
thirty (30) years, and the interest rate, if any, may not exceed current market
interest rates. UNF retains legal title
to any capital project financed in whole or in part by such loan irrespective
of whether the loan is repaid. The DSO
is prohibited from transferring the note or any other instrument associated
with the borrowing to any other entity.
Process for Submitting Debt for Approval
Timing. The submission of proposed debt for approval by
the BOG shall be governed by the following process:
shall formally transmit to the Board Office a request for debt approval no
later than 90 days prior to the next regularly scheduled meeting of the
BOG. UNF shall also provide a copy to
the State Division of Bond Finance (“DBF”).
The formal transmittal to the Board Office shall be in duplicate, hard
copy, and bound in a three-ring binder, and include all the information
required by these guidelines. Electronic
copies of supporting documentation should be provided to the Board Office and
the DBF, to the extent available. The
formal letter of transmission must be signed by the official point of contact
for the university, and any exceptions to these Debt Guidelines shall be noted
and explained. If the university BOT has
not yet formally approved the debt being requested, the proposal BOT meeting
date shall be provided.
b) During the review period the, BOG Board Office
shall review the information submitted for compliance with these guidelines and
State law, analyze general credit issues associated with the proposed indebtedness,
and review any analysis provided by the DBF staff.
c) BOG and DBF staff shall jointly discuss with UNF
or its DSOs any issues, concerns or suggestions resulting from the review
during the review period. As a result of these discussions, UNF may amend the information
submitted or explain why the suggestions were not incorporated. The BOG will advise the university if it
believes that any amended information is so significant that re-authorization
by the BOT and/or DSO is required. During
this period, if the debt being requested for approval is to be issued by the DBF
on behalf of UNF, DBF shall submit to the BOG a form of a resolution for adoption
by the BOG requesting that DBF issue the debt.
d) After the review period, the BOG staff shall submit
the, agenda item with supporting documentation and all appropriate and required
analyses to the BOG for consideration at its next meeting. Supporting documentation for the agenda item shall
also include the resolution to be adopted by the BOT requesting issuance of the
debt by DBF or a resolution approving issuance of the debt by the DSO.
Information Required for Submission. The following information shall be submitted to
the BOG in support of a request
for approval of the issuance of debt. Additionally,
UNF or its DSOs shall complete the “Checklist of Information Required for
Submission to the Board Pursuant to Debt Management Guidelines,” and provide any
additional information requested by BOG or DBF staff in connection with review
of any proposed debt issuance.
a) A resolution of the DSO Board of Directors approving
the debt issuances, if applicable, and a resolution of the UBOT approving the debt
issuance and authorizing UNF to request BOG approval of the debt issuance. For debt
to be issued by DBF, at the request of the UNF, DBF staff will work with UNF to
determine a not-to-exceed amount of debt to be included in the BOT requesting resolution
to the BOG and in preparing required debt service and source-and-use schedules.
b) The project program, feasibility studies or consultant
reports (if available), and an explanation of how the project being proposed is
consistent with the mission of UNF.
c) Estimated project cost, with schedules drawn
by month and including start and completion dates, estimated useful life, and
the date bond proceeds are required..
d) The sources-and-uses
of funds, clearly depicting all costs, funding sources expected to be used to
complete the project and the estimated amount of the debt to be issued.
e) An estimated debt service schedule with the assumed
interest rate on the debt clearly disclosed. If the proposed debt service is not structured
on a level debt service basis, an explanation shall be provided which gives the
reason why it is desirable to deviate from a level debt structure.
consolidated debt service schedule separately showing all outstanding debt
related to or impacting the debt being proposed, the proposed debt and the new
estimated total debt service.
g) A description
of the security supporting the repayment of the proposed debt and the lien
position the debt will have on that security. If the lien is junior to any other debt, the
senior debt must be described. Furthermore,
a description of why the debt is proposed to be issued on a junior lien basis must
be provided. A statement citing the legal
authority for the source of revenues securing repayment must be provided.
h) If debt is to
be incurred on a parity basis with outstanding debt, a schedule showing estimated
compliance with any additional bonds requirement set forth in the documents governing
the outstanding debt. The applicable provisions of the documents for bonds of DSOs
should be provided.
i) Financial statements for five years, if available, for the
auxiliary, if auxiliary revenues are
j) A five-year
history, if available, and five-year projection of the revenues securing payment
and debt service coverage. To the extent
applicable, the projections must be shown on the individual project as well as the
entire system. All revenue items securing
repayment must be clearly set forth as separate line items. An explanation should be provided with regard to
growth assumptions, and to the amount and status of approval of any rate increases. The effect
of the rate increases on the projections and expected revenues and expenses for
the new facility should be clearly set forth as a separate line item. If rate increases are necessary, a commitment
must be made to increase rates to the needed levels. Major categories of any operating expenses should be set forth as
separate line items with an explanation of assumptions regarding increases or decreases.
k) Evidence that the project is consistent with the
UNF master plan, or a statement that the project is not required to be in the master
variable rate debt proposals:
i) the expected
reduction in total borrowing costs based on a comparison of fixed versus variable
ii) a variable
rate debt management plan that addresses liquidity and interest rate risks and
provides, at a minimum: a description of budgetary controls, a description of
liquidity arrangements, a discussion of why the amount of variable rate debt
being proposed is appropriate, and a plan for hedging interest rate
exposure. If interest rate risks are to
be mitigated by the use of derivatives, then evidence that the counterparty has
a long term rating of at least an A/A2 and a swap management plan as set forth
in the BOG’s Debt Management Guidelines must be submitted;
iii) a pro forma showing the fiscal feasibility of the
project using current market interest rates plus 200 basis points;
iv) the total amount
of variable rate debt including proposed debt as a percentage of the total
amount of UNF and DSO debt outstanding; and
v) the individual or position that will be responsible
for the reporting requirements for variable rate debt as set forth in these
m) If all or any portion of the financing is contemplated to be done on
a taxable basis, then evidence demonstrating that the issuance of taxable
debt is in the best interest of UNF must be submitted.
n) A statement explaining
whether legislative approval is required, and if required, an explanation as to
when legislative approval will be sought or evidence that legislative approval
has already been obtained.
o) A statement that the debt issuance is in accordance with the UNF
debt management policy or, if not, an explanation
of the specific variances as well as the reasons supporting the variances.
p) If a request is
made to employ a negotiated method of sale, an analysis must be provided
supporting the selection of this method that includes a discussion of the
factors set forth in section IV of these Guidelines.
q) A description of
the process used to select each professional engaged in the transaction,
showing compliance with the competitive selection process required by these
Guidelines. Specific contact information
for each selected professional, must be included, and at a minimum, should
disclose the professional’s name, firm name, address, e-mail address, phone
number and facsimile number.
r) The most recent annual variable rate debt
s) An analysis must be prepared and submitted which provides quantitative metrics justifying the need for the construction or acquisition of the project and explains why the project is essential to the UNF’s core mission. There must also be a detailed assessment of private sector alternatives and a determination of whether the private sector can offer a comparable alternative at a lower cost. This information may be included as part of a project feasibility study or may be a stand-alone report.
t) An analysis must be prepared which calculates the expected return on investment or internal rate of return for a revenue-generating project or another appropriate quantitative measure for a non-revenue generating project.
Approval. The BOG will
consider the following factors in connection with its review and approval of UNF
or DSO debt issuance.
a) The debt is to provide funding for needed infrastructure
of UNF for purposes consistent with the mission of UNF.
b) The debt is being issued in compliance with the
principles and guidelines set forth herein.
c) The project information submitted is
reasonable and supportable.
d) The five-year projection
of pledged revenues available to pay debt service should provide debt service coverage
of at least 1.20x for both outstanding parity debt and for the proposed new debt
for all years within the five-year projection period after giving credit for
any capitalized interest and other revenues available for payment.
e) Any requirements for the issuance of additional
parity debt can be reasonably expected to be met.
Purposes for Which Debt May Be Issued
Debt may be issued only to finance or refinance capital outlay
projects as defined in these guidelines, including equipment and software; debt
may not be approved to finance or refinance operating expenses of UNF or its
Refunding bonds may be issued to achieve debt service savings.
Refunding bonds may also be issued to restructure
outstanding debt service or to revise provisions of financing documents if it can
be demonstrated that the refunding is in the best interest of UNF.
Committing University Resources for Debit Issued by Direct Support Organization
There may be occasions where UNF considers committing its financial
resources on a long-term basis in support of debt issued by its DSOs or other component
unit. While the nature of the commitment
may not constitute a legal debt obligation of UNF, it may affect the university's
debt position and its available financial resources. Therefore,
UNF should evaluate the long-term fiscal impact upon the university's debt position
and available resources before authorizing any such financial commitment. Additionally, the debt of any DSO may not be
secured by an agreement or contract with UNF unless the source of payments under
such agreement or contract is limited to revenues that UNF is authorized to use
for the payment of debt service. Any such
contract or agreement shall also be subject to the requirements set forth under
“Security Features – Pledged Revenues” herein.
In order to access the credit markets at the lowest possible
borrowing cost, it is recognized that credit ratings are critical. Therefore, for all publicly offered debt:
a) For existing bond programs, UNF and its DSOs shall
strive to maintain or improve current credit ratings without adversely impacting
the amount of debt which may be issued for any particular program.
b) For all new financings;
UNF or its DSOs shall seek to structure the transaction to achieve a minimum rating
of “A” from at least two nationally recognized rating agencies. Credit enhancement
may be used to achieve this goal.
UNF has traditionally issued tax exempt debt which results in
significant interest cost savings compared with the interest cost on taxable debt.
Accordingly, all UNF and its DSOs debt should
be issued to take advantage of the exemption from federal income taxes unless UNF
demonstrates that the issuance of taxable debt is in the University’s best interest.
With respect to debt which has a management
contract with a private entity as part of the security feature, the management contract
should comply, to the greatest extent practical, with tax law requirements to
obtain tax exemption for the debt.
Pledged Revenues. The
debt issued by UNF and its DSOs may only be secured by revenues (including fund
balances and budget surpluses) authorized for such purpose. The revenues which may
secure debt include the following:
a) Activity and Service Fee, subject to the limitation
that annual debt service payable from these fees does not exceed five percent
of the revenues derived there from.
b) Athletic Fee, subject to the limitation that annual
debt service payable from these fees does not exceed five percent of the
revenues derived there from.
c) Health Fee.
d) Transportation Access Fee.
e) Hospital Revenue.
f) Licenses and
Royalties for facilities that are functionally related to UNF operation or its
DSOs reporting such royalties and licensing fees.
g) Gifts and Donations for debt not longer than
h) Overhead and indirect costs and other monies not
required for the payment of direct costs of grants.
i) Assets of the
UNF Foundations and its DSOs and earnings thereon.
j) Auxiliary Enterprise Revenues, e.g., housing, parking,
food service, athletic, retail sales, research activities.
Revenues which are not enumerated above may not be pledged to
secure debt unless authorized by law for such purpose. In the case of UNF-issued debt, the pledge of revenues
which secures debt should specifically identify the sources pledged and not use
general or vague terms such as “lawfully available revenues.” Specifically identifying revenues used to secure
debt will provide certainty and transparency as to the revenues that are encumbered
and avoid ambiguity or uncertainty as to the issuer’s legal liability, UNF and its
DSOs should take this into consideration when determining the nature of the security
it will provide in connection with a debt issuance. The guidelines for pledging revenues and securing
debt shall also apply to debt structures which involve an agreement, contract or
lease with UNF or its DSOs, i.e., the revenues being pledged to secure debt must
be specifically identified and lawfully available for such purpose. It is preferable,
whenever possible, to secure debt with system pledges comprised of multiple facilities
within a system, e.g., housing and parking, rather than stand-alone project
Revenues from one auxiliary enterprise (a “Supporting Auxiliary
Enterprise”) may not be used to secure
debt of another auxiliary enterprise unless the BOG, after review and analysis,
determines that the facility being financed (the “Facility”) id functionally
related to the Supporting Auxiliary Enterprise’s revenues being used to secure
such debt. The BOG must determine
whether a functional relationship exists whenever revenues from a Supporting
Auxiliary Enterprise will be used to pay or secure the debt of a Facility or
when proceeds of bonds issued by a Supporting Auxiliary Enterprise will be
used, directly or indirectly, to pay costs relating to a Facility. When a functional relationship is established
between a Facility and a Supporting Auxiliary Enterprise, only that portion of
the Supporting Auxiliary Enterprise’s revenues that exceed its operating
requirements and debt service, if any, may be pledged to secure such debt;
provided that such pledge may be on parity with outstanding debt if permitted
by the covenants and conditions of the outstanding debt.
A functional relationship exists when a nexus is established
between the Facility and the Supporting Auxiliary Enterprise’s revenues. Whether a Facility is functionally related to
the Supporting Auxiliary Enterprise’s revenues must be determined on a case by
case basis, taking into consideration the unique facts and circumstances
surrounding each individual situation.
Examples of functional relationships include, but are not
limited to, a parking facility intended to provide parking to residents of a
student housing facility and located within reasonably close proximity to a
student housing facility; a food services facility intended to serve residents
of a student housing facility and located within reasonably close proximity to
a student housing facility; or shared infrastructure (e.g. water lines, sewer
lines, utilities, plaza areas) located within reasonably close proximity to
both the Facility and the Supporting Auxiliary Enterprise. While representations that a Facility will
provide general benefits to or enhance the experience of the student body are
desirable, this factor alone is not determinative in and of itself to establish
a functional relationship between the Facility and the Supporting Auxiliary
Lien Status. All bonds
of a particular program should be secured by a first lien on specified
revenues. Additionally, bonds should generally be equally
and ratably secured by the revenues pledged to the payment of any outstanding bonds
of a particular bond program. However, the creation of a subordinate lien is
permissible if a first lien is not available or circumstances require.
Reserve Fund. Debt service
reserve requirements may be satisfied by a deposit of bond proceeds, purchase of
a reserve fund credit facility, or funding from available resources over a
specified period of time. In the submission
of a request for debt issuance, it is preferred, though not required, that the bond
size for the proposed debt include a provision for funding a reserve from bond
proceeds. This will ensure that in the event
that UNF is unable to obtain a reserve fund credit facility, it will still have
an authorized bond amount sufficient to fund its needs. Debt service reserve requirements
may also be satisfied with cash balances.
Credit Enhancement. Credit
enhancement is used primarily to achieve interest cost savings. Accordingly, UNF
and its DSOs should consider the cost effectiveness of bond insurance or other credit
enhancements when evaluating a debt issuance and the overall cost thereof. Any bond
insurance or credit enhancement should be chosen through a competitive selection
process analyzing the cost of the insurance or credit enhancement and the expected
interest cost savings to result from their use. The primary determinant in selecting insurance
or other credit enhancement should be price and expected interest cost savings;
however, consideration may also be given to the terms of any arrangement with
the provider of insurance or other credit enhancement.
Capitalized Interest. Capitalized interest from bond proceeds
is used to pay debt service until a revenue producing project is completed or to
manage cash flows for debt service in special circumstances. Because the use of capitalized interest increases
the cost of the financing, it should only be used when necessary for the financial
feasibility of the project.
Length of Maturity. In
addition to any restriction on the final maturity imposed by the constitution or
laws of the State, as a general guideline, the final maturity on bonds should not
exceed thirty years.
Debt secured by gifts and donations shall not be considered long-term
financing but may be used as a temporary or construction loan to accelerate
construction of facilities. Accordingly,
the maturity of debt secured by gifts and donations shall not exceed five years,
including roll-overs or refinancings except refinancings to implement permanent
financing. Debt issued to finance equipment
and software may not be longer than five years or the useful life of the asset being
financed, whichever is shorter. Lastly, the final maturity of the debt should not
exceed the estimated useful life of the assets being financed.
Debt Service Structure.
Generally, debt should be structured on a level debt basis, i.e., so that
the annual debt service repayments will, as nearly as practicable, be the same in
each year. A deviation from these preferences is permissible
if it can be demonstrated to be in UNF’s best interest, such as restructuring debt
to avoid a default and not to demonstrate feasibility of a particular project.
Redemption Prior to Maturity. A significant
tool in structuring governmental bonds is the ability to make the bonds callable
after a certain period of time has elapsed after issuance. This provides the advantage of enabling the issuer
to achieve savings through the issuance of refunding bonds in the event interest
rates decline. Although the ability to refund bonds for a savings
is advantageous, there may be situations where a greater benefit of lower interest
rates may be realized by issuing the bond as non-callable. Accordingly, there is a strong preference that bonds issued by UNF or its DSOs be structured with the least onerous call features as may be practical under the prevailing market conditions. Bonds of a particular issue may be sold as non-callable if it is shown to be in the best interest of UNF or its DSOs.
Debt Issued With a Forward Delivery Date. Debt issued by UNF or its DSOs may be issued that
has a delivery date significantly later than that which is usual and customary.
This debt typically carries an interest rate
penalty associated with the delay in delivery. There
are also additional risks that delivery will not occur. Debt with a forward delivery date may be issued
if the advantages outweigh the interest rate penalty which will be incurred and
UNF and its DSOs are protected from adverse consequences of a failure to
deliver the debt.
Interest Accrual Features
Fixed Rate, Current Interest Debt. Fixed rate debt will continue to be a means of
financing infrastructure and other capital needs. However, there may
be circumstances where variable rate debt is more appropriate, in which case, UNF
or its DSOs shall provide documentation as noted in these guidelines for such
Derivatives. Alternative financing arrangements, generally referred
to as derivatives, are available in the market as an alternative to traditional
bonds. Under certain market conditions, the
use of alternative financing arrangements may be more cost effective than the traditional
fixed income markets. However, these alternative
financing instruments, such as floating to fixed swap agreements, have characteristics
and carry risks peculiar to the nature of the instrument which are different from
those inherent in the typical fixed rate financing. Although UNF and its DSOs should normally continue
issuing fixed and variable rate bonds, alternative financing instruments may be
used when the inherent risks and additional costs are identified and proper
provision is made to protect the BOG, UNF, and its DSOs from such risks. In
determining when to utilize alternative financing arrangements, the availability
of the requisite technical expertise to properly execute the transaction and manage
the associated risks should be evaluated along with any additional ongoing administrative
costs of monitoring the transaction. Also, a comprehensive derivatives policy should
be established by UNF or its DSOs and approved by the BOG prior to approving transactions
using derivatives products.
Capital Appreciation Bonds.
Normally capital appreciation bonds, which do not require current debt service
payments, should not be used. However, when
a compelling UNF interest is demonstrated, capital appreciation bonds may be
Variable Rate Bonds. Variable rate debt may be issued, considering
the totality of the circumstances. Such bonds can reasonably be expected to reduce
the total borrowing cost to the UNF or its DSOs over the term of the financing and
the availability of the requisite technical expertise to properly manage the risks,
and execution of the variable rate transaction should be evaluated along with any
additional ongoing administrative costs of monitoring the transaction. There should
be a solid understanding of the liquidity risk and interest rate risks associated
with variable rate debt. Further, there should
be a debt management plan that mitigates, to the extent possible, these risks over
the life of the debt. The following guidelines
should apply to the issuance of variable rate debt:
a) Expected reduction in total borrowing cost. In
determining reasonably expected savings, a comparison should be made between a fixed
rate financing at the current interest rates and a variable rate transaction,
based on an appropriate floating rate index. The cost of the variable rate transaction should
take into account all fees associated with the borrowing which would not typically
be incurred in connection with fixed rate bonds, such as tender agent, remarketing
agent, or liquidity provider fees.
b) Limitation on variable rate debt. The amount of variable rate debt and interest derivative
exposure is dependent on several factors associated with these types of debts. Included
in the factors associated with these instruments are UNF’s/DSOs operating flexibility
and tightness of budget, access to short- and long-term capital, the likelihood
of a collateral call or termination payment, and UNF’s/DSOs financial expertise.
The level to which UNF may utilize variable rate debt obligation (VRDO) and
interest derivatives (like swaps, collars, and caps) is subject to an understanding
of the risks associated and a debt policy that adequately addresses the
c) Budgetary controls. To avoid a situation in which
debt service on variable rate bonds exceeds the annual amount budgeted, the following
guidelines should be followed in establishing a variable rate debt service budget:
i) A principal
amortization schedule should be established, with provision made for payment of
amortization installments in each respective annual budget;
ii) Provide for payment
of interest for each budget year using an assumed budgetary interest rate which
allows for fluctuations in interest rates on the bonds without exceeding the amount
budgeted. The budgetary interest rate may
be established by: (1) using an artificially high interest rate given current market
conditions; or (2) setting the rate based on the last 12 months actual rates of
an appropriate index plus a 200 basis point cushion or spread to anticipate interest rate
fluctuations during the budget year. The
spread should be determined by considering the historical volatility of short-term
interest rates, the dollar impact on the budget and current economic conditions
and forecasts; or, (3) any other reasonable method determined by UNF or its DSOs
and approved by the BOG;
iii) The amount of debt service actually incurred in each budget
year should be monitored monthly by UNF or its DSOs to detect any significant deviations
from the annual budgeted debt service. Any
deviations in interest rates which might lead to a budgetary problem should be
addressed immediately; and
iv) As part of the
effort to monitor actual variable rate debt service in relation to the budgeted
amounts and external benchmarks, UNF or its DSOs should establish a system to monitor
the performance of any service provider whose role it is to periodically reset the
interest rates on the debt, i.e., the remarketing agent or auction agent.
d) Establish a hedge with short-term investments.
In determining the appropriate amount of variable rate debt which may be issued
by UNF or its DSOs, consideration should be given to mitigating the variable interest
rate risk by creating a hedge “hedge” mitigates the financial impact of debt service increases
due to higher interest rates because, as debt service increases, UNF or its DSOs
earnings on short-term investments also increases. Appropriate personnel should
monitor the hedge monthly. Short-term investment
as a hedge is one of several methods of mitigating interest rate risk. The ratio of such short-term investments to variable
debt needs to be examined in conjunction with other interest rate risk hedging,
striking an overall balance to minimize interest rate risk.
e) Variable interest rate ceiling. The bond documents should include an interest
rate ceiling of no greater than 12%.
f) Mitigating interest
rate risks with derivatives. UNF and its
DSOs are allowed to use various derivatives to mitigate the risk of rising interest
rates on variable rate debt. However, the introduction of these derivatives also
presents other risks for which UNF must mitigate. These risks include rollover risk, basis risk,
tax event risk, termination risk, counterparty credit risk and collateral posting
risk. As a minimum, UNF/DSOs engaging in
this type of interest rate risk mitigation must provide:
that the counterparty is rated at a minimum of an A/A1; and
ii) A swap management plan that details the
a) Why UNF is engaging in the swap and what the
objectives of the swap are.
b) The swap counterparty’s rating.
c) An understanding by the issuer of the cash flow
projections that detail costs and benefits for the swap.
d) The plan of action addressing the aforementioned
risks associated with swaps.
e) Identifying the events
that trigger an early termination (both voluntary and involuntary) under the swap
documents, the cost of this event and how such would be paid.
f) Identifying the method
for re-hedging variable rate exposure should early termination be exercised.
g) A list of key personnel involved in monitoring
the terms of the swap and counterparty credit worthiness.
g) Liquidity. One of the features typical of variable
rate debt instruments is the bondholder’s right to require the issuer to repurchase
the debt at various times and under certain conditions. This, in
theory, could force the issuer to repurchase large amounts of its variable rate
debt on short notice, requiring access to large amounts of liquid assets. There
are generally two methods for addressing this issue. With the first method, issuers which do not have
large amounts of liquid assets may establish a liquidity facility with a financial
institution which will provide the money needed to satisfy the repurchase. The liquidity provider should have a rating of
A1/P1 or higher. The liquidity agreement
does not typically run for the life of long-term debt. Accordingly,
there is a risk that the provider will not renew the agreement or that it could
be renewed only at substantially higher cost. Similar issues may arise if the liquidity provider
encounters credit problems or an event occurs which results in early termination
of the liquidity arrangement; in either case the issuer must arrange for a replacement
liquidity facility. With the second method, issuers with significant resources may
choose to provide their own liquidity. This approach eliminates the costs that would
be charged by a third party liquidity provider and could mitigate the renewal/replacement
risk. If UNF or its DSOs chose to
provide its own liquidity, the institution must maintain liquid assets or facilities
equal to 100% of the outstanding VRDOs.
h) Submission of periodic
reports. By November 30th of each year, UNF
will prepare and submit to the BOT and the BOG an annual variable rate debt report
showing the position during the previous period of UNF or its DSOs variable
rate debt with respect to the following measures:
i) the total
principal amount of variable rate debt to principal amount of total debt;
ii) the amount of
debt service accrued during the reporting period in relation to the pro-rata amount
of annual budgeted debt service for the reporting period. If the amount of debt service which accrued during
the reporting period exceeded the pro-rata amount of annual budgeted debt service
for the period, UNF shall explain what actions were taken to assure that there would
be sufficient revenues and budget authority to make timely payments of debt service
during the subsequent years; and
iii) the amount of
variable rate debt in relation to the amount of UNF and/or its DSOs short-term investments,
and any other strategies used to hedge interest rate risk.
Other Types of Financing
Refunding Bonds. Generally,
refunding bonds are issued to achieve debt service savings by redeeming high interest
rate debt with lower interest rate debt. Refunding bonds may also be issued to restructure
debt or modify covenants contained in the bond documents. Current tax law limits to one time the issuance
of tax-exempt advance refunding bonds to refinance bonds issued after 1986.
There is no similar limitation for tax-exempt current refunding bonds. The following guidelines should apply to the issuance
of refunding bonds, unless circumstances warrant a deviation there from:
a) Refunding bonds should be structured to achieve
level annual debt service savings.
b) The life of the refunding bonds should not exceed
the remaining life of the bonds being refunded.
c) Advance refunding bonds issued to achieve debt
service savings should have a minimum target savings level measured on a
present value basis equal to 5% of the par amount of the bonds used as a
general guide to guard against prematurely using the one advance refunding
opportunity for post – 1986 bond issues. However, because of the numerous
considerations involved in the sale of advance refunding bonds, the 5% target.should
not prohibit advance refundings when the
circumstances justify a deviation from the guideline.
d) Refunding bonds which do not achieve debt service
savings may be issued to restructure debt or provisions of bond documents if such
refunding serves a compelling university interest.
Certificates of Participation and Lease-Type Financing. UNF or its DSOs may utilize these financing structures
for all purposes, but it shall be considered as debt for the purposes of these guidelines
and UNF shall always budget and make available monies necessary to pay debt service,
notwithstanding the right to cancel the lease. Additionally, for lease purchase
financings of equipment, UNF and its DSOs should consider using the State’s consolidated
equipment financing program if it will reduce costs and ensure a market interest
rate on the financing.
Conversions of existing variable rate debt. A conversion between interest rate modes
pursuant to the provisions of variable rate financing documents does not
require BOG approval. However, ten days
prior to the conversion, the University or their DSOs must notify the Board
Office of a conversion and provide a summary of the terms of (i.e. interest
rate, debt service schedule, etc.) and
reasons for the conversion. UNF and the
DSO should answer all questions and provide any additional information that the
BOG deems necessary to fully understand the conversion.
Analysis of Method of Sale
It is in the best interests of UNF and its DSOs to use the method
of sale for their debt that is expected to achieve the best sale results. Based upon the facts and circumstances with
regard to each individual financing, it may be more appropriate to sell debt through
either a competitive sale or through negotiation. Accordingly, UNF and its DSOs may utilize
either a competitive or negotiated sale. If, however, a request is made for a DSO to sell
debt using a negotiated sale, UNF must provide the BOG with an analysis showing
that a negotiated sale is desirable. The
analysis should include, but not necessarily be limited to, a consideration of the
a) Debt Structure
revenues – strong revenue stream vs. limited revenue base;
ii) security structure
– conventional resolution, cash flow, rate and coverage covenants vs. unusual
or weak covenants;
iii) debt instrument
– traditional serial and term bonds vs. innovative, complex issues requiring
special marketing; and
iv) size – a smaller
transaction of a size which can be comfortably managed by the market vs. a large size which the market cannot readily handle.
b) Credit Quality
i) ratings –
“A” or better vs. below single “A”; and
ii) outlook – stable
i) type of organization
– well-known, general purpose vs. special purpose, independent authority;
ii) frequency of
issuance – regular borrower vs. new or infrequent borrower; and
iii) market awareness – active secondary market vs. little
or no institutional awareness.
rates – stable; predicable vs. volatile;
ii) supply and demand
– strong investor demand, good liquidity vs. oversold, heavy supply; and
iii) changes in law – none vs. recent or anticipated
Bonds may also be sold through a private or limited placement,
but only if it is determined that a public offering through either a competitive
or negotiated sale is not in the best interests of UNF or its DSOs.
Allocation of Bonds
In the event a negotiated sale by a DSO is determined by UNF
to be in the university’s best interest, syndicate rules shall be established which
foster competition among the syndicate members and ensure that all members of the
syndicate have an opportunity to receive a fair and proper allocation of bonds
based upon their ability to sell the bonds.
Report on Sale of Bonds
UNF or its DSOs shall prepare a report on the sale of bonds or
anytime it incurs debt. The report shall be prepared and provided to the BOG as
soon as practicable but in no event later than seven business days after
closing the transaction including the following:
a) The amount of the debt.
b) The interest rate on the debt.
c) A final debt service schedule or estimated debt
service schedule if a variable rate debt or the interest rate is subject to
d) Any aspect of the transaction that was different
from the transaction submitted for approval.
e) Itemized list of all fees and expenses incurred
on the transaction.
negotiated sale of bonds:
underwriters’ spread detailing the management fee;
ii) takedown by
maturity and aggregate takedown;
iii) any risk component and an itemized list of the
placed by each underwriter and final bond allocation;
v) total compensation
received by each underwriter; and
vi) any report
or opinion of the financial advisor.
g) Final official statement for publicly offered
h) Bond insurance or any other form of credit
enhancement and the terms thereof.
i) Credit rating reports.
For any project financing approved by the BOG on or after November 7, 2012, the University or its DSOs shall prepare an annual report to the BOG, and the Division of Bond Finance which updates information provided for the initial approval of the project. The report shall include information relating to the return on investment or internal rate of return for a revenue-generating project or another appropriate quantitative measure for a non-revenue generating project, and any other information as may be required. The format and specific time frame for reporting shall be as specified by the Chancellor. However, the initial annual report shall be filed no later than November 30th after the project has been placed in service for one full fiscal year.
Selection of Financing Professionals
The use of underwriters for negotiated financings and the use
of financial advisors for negotiated and competitive offerings is necessary to assist
in the proper structuring and sale of debt. To assure fairness and objectivity in
the selection of professionals and to help select the most qualified professional,
the selection of underwriters and financial advisors should be accomplished through
a competitive selection process. A competitive selection process allows UNF and
its DSOs to compare more professionals and obtain the best price and level of
UNF and its DSOs shall use best practices in preparing disclosure
documents in connection with the public offer and sale of debt so that accurate
and complete financial and operating information needed by the markets to assess
the credit quality and risks of each particular debt issue is provided.
The disclosure recommendations of the Government Finance Officers
Association’s “Disclosure for State and Local Governments Securities,” and
the National Federation of Municipal Analysts’ “Recommended Best Practices in Disclosure
for Private Colleges and Universities” should be followed to the extent practicable,
specifically including the recommendation that financial statements be prepared
and presented according to generally accepted accounting principles.
DSOs shall fulfill all continuing
disclosure requirements set forth
in the transaction documents and as required under
Rule 15c2-12 of the Securities and Exchange Commission.
Investment of Proceeds of Debt Issued by DSOs
Construction Funds. Funds
held for payment of debt service and all other funds held as required by the documents
of any financing shall be invested consistent with the terms of the Financing
UNF will comply with federal arbitrage regulations. Any arbitrage
rebate liabilities should be calculated and funded annually.
The foregoing guidelines shall be effective immediately and may
be modified from time to time by the Board of Trustees as circumstances warrant.
The guidelines are intended to apply
prospectively to all UNF and its DSOs debt, and not to adversely affect any UNF
or DSO debt currently outstanding or projects approved by the BOG or UBOT prior to, or existing, as of January 26, 2006.
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