Debt Policy 315

Policy 315 Approved: February 1, 2017
Debt Policy
Policy 315
Revision Authority: Chancellor
History: First Issued: February 1, 2017
Responsible Offices: Finance and Administration
Effective Date: February 1, 2017

I. Purpose
This Policy outlines the University philosophy on debt, establishes the framework for approving, managing, and reporting debt and provides debt management guidelines.

The mission of The University of North Carolina School of the Arts (University) is supported by the development and implementation of the long-term strategic plan. The strategic plan establishes University-wide priorities and programmatic objectives. The University develops a capital plan to support these priorities and objectives.

The University’s use of debt plays a critical role in ensuring adequate and cost effective funding for the capital plan. By linking the objectives of its Debt Policy to its strategic objectives, the University ultimately increases the likelihood of achieving its mission.

This Debt Policy is intended to be a dynamic document that will evolve over time to meet the changing needs of the University.

II. Scope and Objectives
This Debt Policy applies to the University and covers all forms of debt including long-term, short-term, fixed-rate, and variable-rate debt. It also covers other forms of financing including both on-balance sheet and off-balance sheet structures, such as leases, and other structured products used with the intent of funding capital projects.

The use of derivatives is not covered under this policy. When the use of derivatives is being considered a separate Interest Rate Risk Management policy will be drafted.

The objectives of this policy are to:

a. Outline the University’s philosophy on debt

b. Establish a control framework for approving and managing debt

c. Define reporting guidelines

d. Establish debt management guidelines

This Debt Policy formalizes the link between the University’s Strategic Plan and the issuance of debt. Debt is a limited resource that must be managed strategically in order to best support University priorities.

The policy establishes a control framework to ensure that appropriate discipline is in place regarding capital rationing, reporting requirements, debt portfolio composition, debt servicing, and debt authorization. It establishes guidelines to ensure that existing and proposed debt issues are consistent with financial resources to maintain an optimal amount of leverage, a strong financial profile, and a strategically optimal credit rating.

Under this policy, debt is being managed to achieve the following goals:

a. Maintaining access to financial markets: capital, money, and bank markets.

b. Managing the University’s credit rating to meet its strategic objectives while maintaining the highest acceptable creditworthiness and most favorable relative cost of capital and borrowing terms;

c Optimizing the University’s debt mix (i.e., short-term and long-term, fixed-rate and floating-rate) for the University’s debt portfolio;

d. Managing the structure and maturity profile of debt to meet liquidity objectives and make funds available to support future capital projects and strategic initiatives;

e. Coordinating debt management decisions with asset management decisions to optimize overall funding and portfolio management strategies.

The University may use debt to accomplish critical priorities by more prudently using debt financing to accelerate the initiation or completion of certain projects, where appropriate. As part of its review of each project, the University evaluates all funding sources to determine the optimal funding structure to achieve the lowest cost of capital.

III. Policy

A. Roles and Responsibilities

The Office of the Vice Chancellor for Finance and Administration (“VCFA”) is responsible for implementing this policy and for all debt financing activities. The policy and any subsequent, material changes to the policy must be approved by the Chancellor. The approved policy provides the framework under which debt management decisions are made. The exposure limits listed in the policy are monitored on a regular basis by VCFA office. The Office of the VCFA reports regularly to the Chancellor and the BOT on the University’s debt position and plans.

B. Approval Process

All debt issued is by the authority granted to the UNC System Board of Governors under N.C.G.S. § 116D, Article 3. All debt issue is approved by the UNCSA Board of Trustees and then by the UNC System Board of Governors.

When the University participates in bond programs that are administered by the State, including State tax supported debt; such bonds are issued by the State Treasurer, who also possesses the authority to price such bonds.

Revision History

A. February 1, 2017: Adopted by the Chancellor