To fulfill its mission, the University of the Pacific must make capital investments. Debt--especially tax-exempt debt-- is recognized as an important and continuing source of the University's capital to fund improvements necessary to achieve the University's mission and strategic objectives. This policy provides the framework by which decisions will be made regarding the use of debt to finance University capital projects.
Given that the University has limited debt capacity, University administration will allocate the use of debt financing for the University's benefit only with the approval of the Board of Regents. This allocation includes the prioritization of debt resources among all uses, including academic projects, equipment financing, real estate investment, financial opportunities, and other projects. In allocating debt, the following guidelines will be used:
Maintaining the highest acceptable credit rating is a primary objective of this policy because doing so will permit the University to continue to issue debt and finance capital projects at favorable interest rates while meeting its strategic objectives. The University will limit its overall debt to a level that will maintain an acceptable credit rating with the bond rating agencies.
Timely and complete access to financial information. To ensure the maintenance and achievement of this objective, the Board expects Management to provide the rating agencies with full and timely access to required information.
Because the rating agencies monitor a number of other statistics and ratios in developing their opinions, Management is expected to review annually all key-rating agencies' ratios to monitor compliance with rating guidelines. The following four ratios are not to be exceeded using the forecast of the current year without express approval of the Board of Regents:
This leverage ratio measures the availability of assets, excluding permanently restricted assets, to cover debt should the University be required to repay its outstanding obligations. The target for this ratio is to be no less than 125%.
Debt Service to Operations = Actual Debt Service/Total Expenses
The debt service to operations ratio measures the percentage of debt service to the total annual operating expenses of the University. By maintaining an appropriate proportion of debt service to total expenses, other critical and strategic needs can be met as part of the expense base. The target for this ratio is to be no greater than 5%.
Unrestricted Resources to Debt = (Total unrestricted resources)I Outstanding Debt
The unrestricted asset to debt ratio measures the availability of all-unrestricted assets of the University that could be used if the University was required to pay the total debt obligation. The target for this ratio is to be no less than 100%.
Finally, the University has covenanted that, so long as any of the 1997 and 1998 bonds are outstanding, it will maintain unrestricted and temporarily restricted assets, (including plant assets after adding back depreciation and amortization), equal to at least 200% of its total outstanding debt.
The Office of the Vice-President for Business and Finance will provide an annual debt report to the Board of Regents. The debt report will cover updated ratios, debt outstanding, annual debt service, available capacity, and bond rating.
The Debt Policy will be reviewed by the Finance Committee of the Board of Regents at least every two years and modified as necessary to reflect changing conditions.