Ohio Board of Regents

Transcription

1 Ohio Board of Regents University System of Ohio 2014 Trustees Conference November 2014 Public Financial Management, Inc. Plaza South One 7251 Engle Road, Suite 115 Cleveland, Ohio

2 Table of Contents Page Debt Financing Considerations 2 Institutional Mission, Policies and Strategic Priorities 3 Debt Affordability 4 Credit Structure and Strategy Development 5 Moody s Select Credit Ratio Data 8 SB6 Ratio Data 10 Debt Structure and Financing Alternatives 12 Debt Issuance Execution Transaction Participants 13 Debt Issuance Execution Debt Issuance Methods 14 Ongoing Debt Management 15 Appendix 16 Century Bonds A Brief Overview 17 PFM s Ohio Practice Public Financial Management, Inc. Ohio Board of Regents University System of Ohio 2014 Trustees Conference 1

3 Debt Financing Considerations Funding capital through debt financing must be considered in the context of a College s or University s: 1) Institutional Mission, Policies and Strategic Priorities 2) Debt Affordability Once the decision to issue debt has been made, borrowers need to determine appropriate: 1) Credit Structure and Strategy Development 2) Debt Structure and Financing Alternatives 3) Debt Issuance Execution 2014 Public Financial Management, Inc. Ohio Board of Regents University System of Ohio 2014 Trustees Conference 2

4 Institutional Mission, Policies and Strategic Priorities Institutions must be able to articulate the decision to finance a project in the context of its overall: 1) Vision and Mission 2) Strategic Plan and Goals 3) Long -Term Capital Plan and Priorities 4) Other Policy Considerations To help provide a framework for considering debt issuance it is helpful for governing bodies and Management to establish debt management policies that detail: A) Approach to Assessing Debt Capacity B) Threshold Criteria for Debt Issuance C) Acceptable Financing Alternatives D) Debt Structure Parameters 2014 Public Financial Management, Inc. Ohio Board of Regents University System of Ohio 2014 Trustees Conference 3

5 Debt Affordability Every Institution will have to determine a comfortable level of debt in consideration of: 1) Operating Performance a) Revenue and Expense Trends i) Net Tuition Revenues ii) State Appropriations iii) Federal and Other Funding iv) Net Auxiliary Revenues v) Labor and Benefits Costs b) Net Revenues Debt Service Coverage Capacity 2) Balance Sheet Position a) Assets b) Liabilities i) Endowment and Quasi-Endowment c) Pension and OPEB Obligations 2014 Public Financial Management, Inc. Ohio Board of Regents University System of Ohio 2014 Trustees Conference 4

6 Credit Structure and Strategy Development Borrowers will need to assess the appropriate credit structure for their bonds, typical credits for Ohio higher education institutions include: 1) General Receipts Bonds, and 2) Limited Revenue (auxiliary) Credits Issuers can acquire additional credit enhancement through external providers: 1) Municipal Bond Insurers 2) Letter of Credit Providers Banks 3) State Credit Enhancement Program Community Colleges 2014 Public Financial Management, Inc. Ohio Board of Regents University System of Ohio 2014 Trustees Conference 5

7 Credit Structure and Strategy Development (cont) The credit markets, including the credit rating agencies, analyze an entity s ability to repay debt based on the following: 1) Market Position a) Market Reputation b) Scope of Operations c) Student Demand and Pricing Power d) Philanthropic Support 2) Operating Performance a) Cash flow b) Budgetary Flexibility and Operating Freedom c) Revenue Diversity 3) Balance Sheet and Capital Investment a) Wealth b) Liquidity c) Capital Investment 2014 Public Financial Management, Inc. Ohio Board of Regents University System of Ohio 2014 Trustees Conference 6

8 Credit Structure and Strategy Development (cont) 4) Governance and Management a) Board and Senior Management Composition b) Oversight and Disclosure Practices c) Short- and Long-Term Planning d) Self-Assessment and Benchmarking e) Government Relations 5) Legal Security and Debt Structure a) Bondholder Security Provisions b) External Financing Terms and Conditions Similarly the State of Ohio requires higher education institutions to calculate and maintain minimum credit metric levels Senate Bill 6 ( SB6 ) 2014 Public Financial Management, Inc. Ohio Board of Regents University System of Ohio 2014 Trustees Conference 7

9 Moody s Select Credit Ratio Data Moody's MFRA Credit Ratios Moody's Aa1 Medians 1 Moody's Aa3 Medians 1 Moody's A1 Medians 1 Moody's Baa1 Medians 1 Ohio State University Kent State University Ohio University Miami University University of Cincinnati Bowling Green State University Years FY2013 FY2013 FY2013 FY2013 FY2013 FY2013 FY2013 FY2013 FY2013 FY2013 Current Senior Most Rating Aa1 Aa3 A1 Baa1 Aa1 Aa3 Aa3 Aa3 Aa3 A1 Total Direct Debt ($, in millions) Total Revenues ($, in millions) Total Expenses ($, in millions) Balance Sheet Ratios Unrestricted financial resources-to-direct debt (x) Expendable financial resources-to-direct debt (x) Total cash & investments-to-direct debt (x) Debt Service to Operations (%) Capital Ratios Expendable financial resources-to-operations (x) Operating Ratios Operating margin (%) Debt service coverage (x) (1) Source: Public Financial Management, Inc. Ohio Board of Regents University System of Ohio 2014 Trustees Conference 8

10 Moody s Select Credit Ratio Data (cont) Moody's MFRA Credit Ratios Moody's Aa1 Medians 1 Moody's Aa3 Medians 1 Moody's A1 Medians 1 Moody's Baa1 Medians 1 University of Akron Cleveland State University University of Toledo Wright State University Youngstown State University NEOMED Years FY2013 FY2013 FY2013 FY2013 FY2013 FY2013 FY2013 FY2013 FY2013 FY2013 Current Senior Most Rating Aa1 Aa3 A1 Baa1 A1 A1 A1 A1 A1 Baa1 Total Direct Debt ($, in millions) Total Revenues ($, in millions) Total Expenses ($, in millions) Balance Sheet Ratios Unrestricted financial resources-to-direct debt (x) Expendable financial resources-to-direct debt (x) Total cash & investments-to-direct debt (x) Debt Service to Operations (%) Capital Ratios Expendable financial resources-to-operations (x) Operating Ratios Operating margin (%) Debt service coverage (x) (1) Source: Public Financial Management, Inc. Ohio Board of Regents University System of Ohio 2014 Trustees Conference 9

11 SB6 Ratio Data FY 2013 Financial Ratio Analysis Institutional Ratios and Scores University Bowling Green State University Central State University Cleveland State University Kent State University Miami University Composite Score Viability Net Income Primary Reserve Ratio* Score Ratio Score Ratio Score % % % % % % % % % % % % % % % 5.00 Northeast Ohio Medical University % % % 5.00 Ohio State University Ohio University Shawnee State University University of Akron University of Cincinnati University of Toledo Wright State University Youngstown State % % % % % % % % % % % % % % % % % % % % % % % % 4.00 * The viability ratio is not calculated for campuses that do not have long-term plant debt. In such instances, a viability score of 5.0 is automatically assigned. Source: Ohio Board of Regents NOTE: Pursuant to the administrative rule (126:3-1-01) established by Senate Bill 6, a composite score of or below 1.75 for two consecutive years would result in a campus being placed on fiscal watch Public Financial Management, Inc. Ohio Board of Regents University System of Ohio 2014 Trustees Conference 10

12 SB6 Ratio Data (cont) FY 2013 Financial Ratio Analysis Institutional Ratios and Scores Belmont College Viability Net Income Primary Reserve Ratio* Score Ratio Score Ratio Score 4.60 N/A % % 5.00 Cincinnati State % % % 4.00 Clark State % % % 4.00 Columbus State % % % % % % 4.00 Cuyahoga Community College % % % 4.00 Hocking College Community Colleges Central Ohio Technical College Edison State Community College James A. Rhodes State College Eastern Gateway Community College Lakeland Community College Lorain County Community College Marion Technical College North Central State College Northwest State Community College Owens Community College University of Rio Grande Sinclair Community College Southern State Community College Stark State College Terra Community College Washington State Community College Zane State College (MATC) Composite Score % % % % % % % % % % % % % % % % % % N/A % % N/A % % N/A % % % % % N/A % % N/A % % % % % % % % % % % N/A % % % % % 4.00 * The viability ratio is not calculated for campuses that do not have long-term plant debt. In such instances, a viability score of 5.0 is automatically assigned. Source: Ohio Board of Regents NOTE: Pursuant to the administrative rule (126:3-1-01) established by Senate Bill 6, a composite score of or below 1.75 for two consecutive years would result in a campus being placed on fiscal watch Public Financial Management, Inc. Ohio Board of Regents University System of Ohio 2014 Trustees Conference 11

13 Debt Structure and Financing Alternatives Public higher education institutions have access to various debt tools, in consideration of their desired debt structure and risk profile: 1) Tax Status Taxable (no restrictions on use of proceeds) Tax Exempt (restricts use of proceeds) 2) Term Long-Term: Bonds; Loans Short-Term: Notes, Lines of Credit, Commercial Paper 3) Interest Rate Exposure Fixed Rate, Variable Rate 4) Redemption Provisions Debt Structure and Financing Alternatives options must be considered in the context of an appropriate risk profile for each institution Public Financial Management, Inc. Ohio Board of Regents University System of Ohio 2014 Trustees Conference 12

14 Debt Issuance Execution Transaction Participants Issuer/Borrower Underwriter (Senior Manager) Underwriter s Counsel Financial Advisor Bond Counsel Issuer s Counsel (as needed) Trustee Registrar/ Paying Agent Escrow Agent (as needed) Co-Senior Manager(s) Co-Managers Syndicate Members Procures on Behalf of Issuer/Borrower Credit Enhancers (as appropriate) Escrow Verification Agent (as needed) Hard Copy Printer Electronic Distribution Provider 2014 Public Financial Management, Inc. Ohio Board of Regents University System of Ohio 2014 Trustees Conference 13

15 Debt Issuance Execution Debt Issuance Methods Once a decision has been made to issue debt considerations related to the method of issuance, include: Publicly Offered Available to broad base of potential investors, requires significant initial and on-going disclosure Privately Placed Bonds or Loans to sophisticated investors or banks, limited initial and ongoing disclosure Negotiated Placement Procuring (typically through an RFP process) a financial partner an underwriter or financial counterparty to purchase debt Competitive Sale Developing a process where the highest or best bidder wins right to purchase debt 2014 Public Financial Management, Inc. Ohio Board of Regents University System of Ohio 2014 Trustees Conference 14

16 Ongoing Debt Management Borrower s obligations continue after debt has been issued. These obligations include: 1) Continuing Disclosure to Bondholders Financial Statements, Certain Operating and Financial Data, Specified Events 2) Maintaining Tax-Status Continued monitoring of use of proceeds and/or facilities financed 3) Ongoing Debt Monitoring Refunding Opportunities Debt Restructuring, as appropriate 2014 Public Financial Management, Inc. Ohio Board of Regents University System of Ohio 2014 Trustees Conference 15

17 Appendix 2014 Public Financial Management, Inc. Ohio Board of Regents University System of Ohio 2014 Trustees Conference 16

18 Century Bonds A Brief Overview Why entities are issuing Century Bonds No restriction on use of proceeds Provides for long-term working capital Endowment Arbitrage Provides opportunity to invest long-term Favorable market environment Historically low fixed rates Take advantage of crossover buyers and other interested investor groups Structural features High credit rating AA rating category and above Large in size usually greater than $250 million Make whole call provisions UST + spread Not refundable for economic savings 2014 Public Financial Management, Inc. Ohio Board of Regents University System of Ohio 2014 Trustees Conference 17

19 PFM s Ohio Practice In 1996, PFM opened our Ohio regional location to expand the availability and accessibility of our unmatched professional and technical resources to our Ohio clients. Today, PFM is the number one ranked financial advisor in the State of Ohio Public Financial Management, Inc. Ohio Board of Regents University System of Ohio 2014 Trustees Conference 18

20 PFM s Ohio Practice Bethany Pugh has provided municipal financial advisory services to higher education institutions, state and local governments and cultural not-for-profit entities for over 15 years. As a Managing Director at Public Financial Management, Inc., Ms. Pugh leads the firm s Ohio regional practice, which advised on nineteen publicly offered bond issues totaling over $2.4 billion in 2014 alone. In her capacity as financial advisor, Ms. Pugh has helped manage some of the largest debt transactions in the state and has assisted in the competitive and negotiated sale of numerous general receipts, general obligation, economic development and utility revenue credits. In the higher education sector, Ms. Pugh has provided advisory services to seven of Ohio s fourteen fouryear public universities. Recent financial advisory clients include the University of Akron, University of Cincinnati, Central State University, Euclid Avenue Development Corporation (for Cleveland State University), and Kent State University. Services to these institutions have included debt transaction management, debt capacity analyses, financial planning, strategic planning services, and ongoing debt monitoring, among others. Ms. Pugh is a founding member of the Ohio Chapter of Women in Public Finance and served as an Executive Board Member of the national organization from In 2013, Ms. Pugh was recognized as a Woman of Note by Crain s Cleveland Business. Ms. Pugh graduated with Honors from Harvard University where she received a Bachelor of Arts Degree in Economics Public Financial Management, Inc. Ohio Board of Regents University System of Ohio 2014 Trustees Conference 19