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OHIO BOARD OF REGENTS FINANCING INSTITUTIONAL DEBT: ISSUES AND CONSIDERATIONS Stephen T. Golding, Ohio University Vice President Finance & Administration.

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Presentation on theme: "OHIO BOARD OF REGENTS FINANCING INSTITUTIONAL DEBT: ISSUES AND CONSIDERATIONS Stephen T. Golding, Ohio University Vice President Finance & Administration."— Presentation transcript:

1 OHIO BOARD OF REGENTS FINANCING INSTITUTIONAL DEBT: ISSUES AND CONSIDERATIONS Stephen T. Golding, Ohio University Vice President Finance & Administration November 18, 2014 1

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3 OHIO’s Sustainable Model for Growth Economies of Scale Enrollment Plan eLearning Multi-location Delivery Model Professional Training Executive Education Experiential Graduate Degrees Workforce Development Family for Life Tuition Guarantee Signature Financial Aid Program Living-Learning Communities Regional Footprint Regional Campuses Regional Strategic Partnerships Extension Campuses Progressive Moves $100 Million Investment Strategy Central Bank Strategy Promise Lives Campaign Student Experience Residential Housing Development Plan Student Commons First Year Experience University Networks Community College Partnerships Globalization Strategy Pipeline Programs Potential Collaboration with Columbus State Community College in Dublin Corporate Partners TechGrowth / Commercialization Plan OU / OSU Innovation Fund Ohio’s Partners Program Ohio’s Portal Initiative Faculty Appeal Endowed Professorships Total Compensation Plan Innovation Strategy 20-Year CIP Initiative 3

4 20-Year Capital Improvement Plan 4

5 6 Year Capital Improvement Plan 20 Year Context (in millions) 5

6 Deferred Maintenance Backlog 6 With the implementation of the Century Bond deferred maintenance strategy, the Athens campus general fund deferred maintenance backlog would reduce to $59 per gross square foot based upon the projects outlined in the six year CIP, including the updated Utility Infrastructure Project. Without Century Bond or debt strategy, the Athens Campus deferred maintenance backlog would rise to $113 per gross square foot by FY2020.

7 Central Bank OU’s Funded Depreciation Strategy 7

8 8 Central Bank Model: Centrally manage financial resources: loans, investments, and cash balances; Decouple internal loans and external debt to minimize cost and maximize assets; Achieve lowest risk-adjusted cost of capital; Create predictability in capital costs and working capital returns for budgeting and forecasting; Recycling of resources to limit external debt. Central Bank Funding Model ($ in millions) * Balances as of 5/31/2014. $236 M * $100 M * $7 M * $250 M Century Bond Century Bond Debt Reserve Central Bank Operating Reserve (diversified pool) Central Bank ( cash and liquidity pools )

9 9 OHIO Strategic Priority Improve Deferred Maintenance Backlog OHIO’s 20-year CIP lays the initial groundwork for tackling its deferred maintenance backlog. However, with future State appropriations uncertain, the University will need a sustainable plan to continue to meet deferred maintenance requirements in the future. These deferred maintenance needs are critical to maintaining the ability to effectively meet our institutional mission as a public research university into the 21 st Century and beyond. OHIO has developed a plan to finance its deferred maintenance needs over the next hundred years through the issuance of a $250M taxable Century Bond.  Continuous funding of deferred maintenance through the life of the Bonds will be achieved through a combination of: Bond proceeds; Internal budget funds, and Endowment fund distributions. This approach will allow for an estimated capital investment of approximately $1.3 billion towards the University’s deferred maintenance needs over the next one hundred years.

10 In 2010, a Sightlines study projected that the University would reach a $1 billion deferred maintenance backlog in 20 years should it continue on its current spending levels. A priority of the University’s 20-year CIP in 2011 was to tackle deferred maintenance. The original 20-year CIP projected a $72 per gross square foot backlog by FY20, reduced from a projected $113 gross square foot projection. With the implementation of the Century Bond, this number would be further reduced to $59 per gross square foot. 10 OHIO Strategic Priority Improve Deferred Maintenance Backlog

11 Use of Proceeds/Key Assumptions 11 The proceeds of the contemplated Century Bonds will be utilized as follows: The century bond funded depreciation plan relies on the following assumptions:  $7M equity investment to repay principal at maturity  5.70% cost of capital  6.90% endowment return  The $150M of century bond proceeds that are not immediately loaned internally are deposited into the endowment and drawn down as needed ($157M total initial deposit including $7M University equity to repay principal at maturity).

12 Mechanics of the Plan 12

13 Structural Guidelines Debt Service Sinking fund ($7M initial investment)  Separate investment policy with Glide Path 50% Long Term Pool 50% Conservative Pool  Minimum balance requirements driven by date milestones Bond proceeds ($250M corpus)  Separate investment policy (developed with Hirtle Callahan)  Internal loan model with internal payments into century bond pool  Century bond corpus and Century Bond pool “co-invested”  Minimum combined balance will be managed to no less than $50M  Proceeds will be used for capital deferred maintenance or other programs identified and approved by the BOT as identified and scheduled in plan 13

14 Program Guidelines University Operating budget will include and fund internal loan payments back to the University Century Bond Pool to offset/pay external interest and fund pool  Creating budgeted depreciation model  Builds and sustains budgeted depreciation from operations to $13M by Year 10  Annual draws ($10M internal loans) will be amortized over 10 years  Energy Infrastructure project will be amortized over 30 years If Century Bond pool exceeds expected balances (based on investment returns modeled), first use will be incremental investment in annual deferred maintenance withdrawal to address respective inflationary impacts on backlog/sq. ft. Goals for deferred maintenance balances (backlog/sq. ft.) will be established and tied to the program and evaluated annually Plans for utilization of annual draws ($10M) will be developed during the annual budget process, and all projects to be funded from this pool will be identified during the project approval process 14

15 Board Reporting Annual reports will be provided to the BOT which include:  Spend to date, with uses  Internal loan P&I included in Operating Budget for next annum (budgeted deferred maintenance)  Corpus ($250M Bond) balance and Pool fund balance  Bond reserve fund ($7M) balance  Investment results and comparison to plans  Estimated draw and use for next annum  Deferred maintenance backlogs / sq ft and progress against goals Inflationary impacts on progress toward goals 15

16 Central Bank Impact on OU’s Balance Sheet 16

17 Pro-Forma Debt Service Through FY2050 (For Illustrative Purposes) 17

18 FY20 Financial Projections 18

19 Debt Issuance Impact on Senate Bill 6 Score Viability Ratio (30% of SB 6 Composite) = Expendable Net Assets / Outstanding Debt < 00 to.029.30 to.59.60 to.991.0 to 2.5> 2.5 012345 Actual FY2013 = 1.01 (SB6 = 4.7) FY2020 Projected ($575M new debt) FY2020 = 0.53 (SB6 = 4.1) Pro Forma $250M Century Bond FY2013 = 0.57 (SB6 = 4.1) 19

20 Early Stage – Manage Risk 20

21 Annual Minimum Balance Requirements Future administrations will retain flexibility to make fund draws to redeploy excess investment earnings towards campus capital projects as long as current and future minimum requirements are met Should minimums not be met, University must draw from operating reserves in order to meet balance requirement $7M Reserve Fund OHIO may redeploy excess funds towards campus capital Projects* *Graph illustrates estimated excess funds assuming returns of 6.9% and 3.37% in the Long Term and Conservative Pools, respectively, as well as portfolio reallocations as described on prior page. 21

22 Mechanics of the Plan 22

23 Questions 23

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