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ROWAN UNIVERSITY POLICY
Title: Debt Management Policy
Subject: Financial Management: Guidance for the Use and Management of Debt
Policy No: FIN: 2008:01
Applies: University-Wide
Issuing Authority: President
Responsible Officer: Senior VP for Finance and CFO
Adopted: 6/4/2008
Last Revision:
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10/
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25/
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2021
Last Reviewed:
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10/
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24/
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2022
I. PURPOSE
This Debt Policy serves to articulate Rowan University’s philosophy regarding debt and to establish a framework to help guide decisions regarding the use and management of debt. As the University establishes institutional priorities through its strategic planning processes, including its campus master planning, the University will consider utilizing an appropriate mix of financing and funding sources, including State funding, gifts, internal reserves and investments, and external debt. This policy will help ensure that an appropriate mix of funding sources are utilized, that the University’s debt capacity is allocated strategically, and that Rowan University’s debt levels and types of debt are appropriate and responsible, given the University’s financial strength and risk tolerance levels.
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- The Board of Trustees will review and consider for approval the annual capital project plan as well as each individual debt financing transaction.
- The President and Senior Vice President for Finance are directly responsible for capital debt issuance and debt management.
- Facilities will take the lead role in estimating and defining project costs and obtaining Board of Trustee approval of the projects before debt issuances are constructed.
- Accounting Services will coordinate with Capital Construction and Facilities to oversee the capital budgeting and funding plans for major projects financed with debt.
- This The Senior Vice President for Finance’s office will work with Accounting, Bond Counsel, Legal, Financial Advisors and others to help prepare and review the documents necessary for bond issuance and rating agency reviews and visits.
- Accounting Services will maintain a schedule of current and forecasted debt and associated payment of principal, interest, and fees. They will provide debt service budgets in the annual budget process and individually to all campus units which are assessed debt service. The Director of Accounting is responsible for the accounting, reporting and other disclosures, monitoring compliance with covenants, and arbitrage calculations associated with existing debt issues.
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- Only projects that further the mission and strategic goals of the University, either directly or indirectly will be considered for debt financing. The structure of any individual transaction will be based upon overall needs to ensure that the long-term costs are minimized and that overall risk does not exceed acceptable levels.
- To the extent possible, State funding, gifts, grants, and internal reserves will be used to fund capital projects. Debt represents a valuable resource and will be used conservatively and strategically.
- Bond financing will be coordinated to the extent possible so that multiple projects can be accommodated in a single borrowing to reduce overall issuance costs per dollar of debt issued.
- The University will limit its overall debt to a level that, when viewed in the context of its current and future strategic objectives, is intended to optimize creditworthiness over the long term. In considering debt capacity and affordability, the University will monitor its financial condition and performance through review of (i) appropriate financial ratios (ii) public ratings; (iii) the merits and feasibility of projects being financed; and (iv) other relevant industry data such as comparison to other higher education institutions. The amount of debt that the University has at any given time will be a function of its ability to service that debt through the operating budget without diminishing the resources necessary for other non-capital priorities while sustaining overall financial health.
- The University will seek the lowest cost source of financing when issuing debt, considered concurrently with the associated risk. It will consider the costs and benefits associated with different types of financing and liquidity options.
- The use of and portfolio allocation to variable rate debt will be determined by the Board of Trustees. The allocation to variable rate debt may be managed or adjusted through the issuance of new debt or refunding and through the use of interest rate swaps and other derivative products such as caps and collars (See Finance policy 2018-02 “Derivative Management Policy”.
The University will analyze costs and benefits of any derivative instrument relative to achieving its long-term capital structure objectives and will consider risk mitigation features. Under no circumstances will a derivative transaction be utilized that is not understood fully by management and the Board or that imposes inappropriate risk on the University. Certain risks to be considered include, but are not limited to, tax risk, interest rate risk, liquidity risk, counterparty risk, basis risk, and any other potential risk. - Annual debt interest and principal amortization payments will be provided for in the annual operating budget or in specific designated or restricted funds. Variable-rate interest will be budgeted conservatively at fixed rate levels adjusted annually.
- The University will interact with credit rating agencies and will strive to maintain the highest acceptable credit rating.
- The University will monitor and consider current or advanced refunding opportunities of outstanding debt when the net present value savings are positive, there is at least a 3% or greater NPV savings and the refunding will support the strategic need of the University. A refunding will also be considered if it relieves the University of certain limitations, covenants, payment obligations, or reserve requirements that reduce flexibility. The University will also consider refinancing certain obligations within a new money offering even if savings levels are minimal in order to consolidate debt into a general revenue pledge and/or reduce the administrative burden and cost of managing many small outstanding obligations.
- New issues should have as few restrictions, covenants or restrictions as possible to allow flexibility in allocating resources.
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