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1. Approved Purposes for Transactions
   1. To achieve savings as compared to a product available in the cash/bond market. Savings shall be calculated after adjusting for
      1. applicable fees, including takedown, remarketing fees, credit enhancement, advisory and legal fees, and
      2. the value of call options that may be foregone on the related debt obligations.
   2. To prudently hedge risk in the context of a particular financing or the overall asset/liability management. Examples include, but are not limited to, interest rate caps, rate locks and forward starting swaps.
   3. To incur variable rate exposure within prudent guidelines, such as selling interest rate caps or entering into a swap in which the University’s payment obligation is based on a floating rate.
   4. To achieve more flexibility in meeting overall financial objectives than can be achieved in conventional markets. A basis swap would be an example of this type of transaction.
   5. To achieve diversification of the University’s debt portfolio.
   6. To achieve diversification of counterparty exposure.
   7. To achieve any other University objective not listed above as described in a specific authorization by the Board of Trustees.
2. General Guidelines
   
   1. Each transaction recommended by the CFO must comply with the following guidelines, except as otherwise provided herein or in unusual market conditions, and all applicable legal documents, insurance covenants, and state and federal law.
   2. The CFO will consider in his/her recommendations, published rating agency guidelines in connection with each transaction.
   3. All transaction documents must be completed using the International Swap and Derivatives Association, Inc. (“ISDA”) Master Agreement, Schedules to the Master Agreement, Credit Support Annex and confirmation, as appropriate and with such terms and conditions, and changes thereto, as are consistent with industry standards and this Policy.
   4. Early termination provisions must be addressed in each transaction. Generally such provisions will provide for a termination at the sole option of the University.
3. Aspects of Risk Exposure Associated with Such Transactions
   
   1. Before entering into a transaction, the CFO and the University’s Financial Advisor shall evaluate all the risks and requirements inherent in the transaction and provide such information to the Board of Trustees.  The University recognizes that there are certain risks associated with interest rate swap transactions and similar transactions that it will consider prior to entering into any such transaction, including those risks described on Exhibit I hereto.
4. Counterparty Exposure Limitation
   1. The University shall consider exposure to counterparties. To that end, before entering into a transaction, the CFO and the University’s Financial Advisor should determine the University’s exposure to the relevant counterparty or counterparties and determine how the proposed transaction would affect such exposure.
   2. The CFO will evaluate counterparty exposure based upon both the credit rating of the counterparty as well as the relative level of risk associated with each existing and proposed transaction prior to any proposed transaction. Projected exposure shall be calculated quarterly based on the transaction’s potential termination value taking into account possible adverse changes in interest rates.
   3. If exposure to any counterparty for any reason is determined by the CFO to be excessive, the CFO, in consultation with its legal counsel and financial advisor, shall explore remedial strategies to mitigate such exposure. The CFO will provide the results of this endeavor to the Budget and Finance Committee of the Board of Trustees in order to formulate a remedial plan, including any recommendations from the CFO to the Board of Trustees.
5. Long-Term Implications
   1. In evaluating a particular transaction, the CFO and the University’s Financial Advisor shall review the long-term implications associated with each transaction, such as costs of borrowing, historical interest rate trends, variable rate capacity, credit enhancement capacity, opportunities to refund related debt obligations, counterparty exposure and other similar considerations.
6. Reflecting Such Contracts in Rowan University’s Financial Statements
   1. The University will require its counterparties to provide mark-to-market valuations of Swaps upon request, and if applicable, the University shall periodically evaluate the effectiveness of the hedge. In addition, the University will obtain periodic mark-to-market valuations from an independent third-party advisor or valuation firm.

VII. APPROVAL OF TRASACTIONSTRANSACTIONS

The University desires to establish an approval structure that provides adequate oversight of transactions while maintaining flexibility to execute such transactions in a timely manner.

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The CFO, in consultation with the University’s Financial Advisor, may provide any recommendations to the Budget and Finance Committee of the Board of Trustees regarding the transactions and recommend any changes to the Derivative Management Policy.

XII. Exit strategiesEXIT STRATEGIES

In the event of termination, whether voluntary or involuntary, the University’s Financial Advisor in conjunction with the CFO, will evaluate the best possible strategy given the market, tax, legal and economic environment at the time of termination. The following are general guidelines for voluntary and involuntary termination strategies:

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1. Attachment 1 - Risks Associated with Derivatives

Attachment 1

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Risks Associated with Derivatives

1. Basis Risk - Risk that the payment on the variable rate debt obligations will exceed the swap receipt (the Securities Industry and Financial Markets Association or “SIFMA” Index or a percentage of the London Interbank Offered Rate or “LIBOR”) due to an issuer-specific credit event or tax code change.
   1. Tax Event Risk - A form of basis risk - risk of higher tax-exempt interest rates (an increase in SIFMA Index) if tax law revisions lower the tax rate on interest income. In the extreme scenario, if a change in tax law eliminated tax-exempt interest income, the market would adjust “tax-exempt” security pricing so that there would be no material difference between the SIFMA Index and LIBOR.
   2. Credit Risk - Credit deterioration of the underlying debt obligations or any bond insurer, letter of credit provider, or liquidity provider insuring or enhancing the related debt obligations would result in basis risk discussed above.
2. Counterparty Risk - Risk that the counterparty cannot make future payments or cannot make a termination payment due to the University.
3. Credit Risk: Credit deterioration of the underlying debt would result in basis risk discussed above when underlying debt is in a variable rate mode or if the interest rate swap is used as a hedge of a future fixed rate debt issue.
4. Disclosure Risk - Accounting standards may require balance sheet and income statement entries for swap agreement interim values.
5. LIBOR Index Discontinuance Risk: The discontinuation of LIBOR may impact the effectiveness of the transaction as a hedge to underlying variable rate debt or other variable rate exposure and also may impact the mark to market value of this transaction. As a result, certain transactions may have to be amended during its term to address the potential discontinuation of LIBOR rate setting.
6. Market Access Risk: Risk that certain market conditions or disruptions could hinder or preclude the Issuer from accessing the capital markets and/or securing attractive financing terms when necessary to restructure, refund or finance potential obligations (i.e. LIBOR and MMD rates disconnect).
7. Rollover Risk – Potential rollover risk exists if the swap maturity does not match the maturity of the hedged debt.
8. Tax Risk: A form of basis risk – risk of higher tax‐exempt interest rates (an increase in SIFMA Index) if tax law changes lower the taxation rate on interest income. In the extreme scenario, if a change in tax law eliminated tax‐exempt status, the market would adjust “tax‐exempt” security pricing so that there would be no material difference between the SIFMA Index and LIBOR.
9. Termination Risk - Termination risk exists if (i) the University opts or is compelled to terminate the swap prior to maturity; (ii) credit ratings for any Financing Program are lowered to below specified downgrade thresholds and the University is unable or is not required to post collateral, as may be required by the swap agreements, to protect the counterparty against the risk resulting from the lowered rating; (iii) the counterparty is downgraded and the counterparty is unable to post collateral; or (iv) the counterparty is downgraded to a level that causes an involuntary termination. Early termination would be solely at the option of the University (except in certain credit events described in (ii), (iii) and (iv) above). It is University policy that the counterparty will not have the option to terminate at any time without cause.
10. Yield Curve Risk: On transactions where an Issuer’s payment is based on a short‐term index and its receipt is based on a long‐term index, an Issuer faces potentially negative cash flows and market value implication in market environments when the yield curve is flat or inverted.

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