Repository: UIHistories Project: Board of Trustees Minutes - 1994 [PAGE 279]

EXTRACTED TEXT FROM PAGE:

1995]

UNIVERSITY OF ILLINOIS

267

T h e vice president for academic affairs and the vice president for business and finance concur in the recommendation. T h e president of the University is authorized to accept resignations, to approve appointments, and to make such other changes as are necessary to meet the needs of the 1995 summer sessions within the total allocation of funds indicated; copies of such appointments to be placed on file with the secretary of the board.

This report was received for record. Report of the Purchase of Natural Gas and Issuance of Certificates of Participation

(32) At the March 9, 1995, meeting, the board authorized the issuance of Certificates of Participation in an amount not to exceed $32.5 million, at an interest rate not to exceed 6.75 percent, to finance the prepurchase of a ten-year supply of natural gas. Seven competitive bids were received on April 4, 1995, and an underwriting contract was awarded to a group headed by the firm of Smith Barney, Inc., in the amount of $29,860,000 at a true interest cost of 5.346 percent. T h e final cost of bond insurance was $687,496, and is less than the upper limit of $800,000 authorized in March. When the bond insurance expense is included, the total interest cost of the issue is 5.69 percent. Thus, both the size of the issue and the interest cost are within the parameters authorized by the board. In addition to the above, the University was requested to establish an escrow fund 1 for the transaction. T h e fund requirement is for a three-year term and all earnings of the fund will flow to the University. T h e final sources and uses of funds table for the natural gas transaction follows. Series 1995 Sources of Funds: Principal Amount of Certificates Accrued Interest Total Sources Uses of Funds: Natural Gas Prepayment Accrued Interest Estimated Cost of Issuance* Original Issue Discount Underwriter's Discount Debt Service Reserve Fund Total Uses $29 860 000 00 49 986 00 $29 909 986 00 $25 684 49 930 70 188 2 986 $29 909 192 986 405 617 784 000 986 73 00 83 35 09 00 00

1 As a condition of insuring this transaction, AMBAC (the insurer) is requiring an escrow of funds to be available during the first three years of the transaction. T h e purpose ot the escrow is to ensure the sufficiency of funds (in addition to amounts the supplier would pay) in the extraordinary event of a supplier default or a recision to fund the lower cost of either a defeasance or an extraordinary call of the certificates. T h e escrow would be used only if an extraordinary event occurred ana the available interest rates to fund the defeasance had dropped significantly below the 5.69 percent yield of the certificates. Only the portion of the escrow required to supplement funds received from the supplier at the rate of return then available to accomplish a defeasance or extraordinary call would be used, and the balance would return to the University. T h e escrow account will be established initially in the amount of $2,301,300. T h e amounts will be reduced to $1,133,900 and $243,700 in 1996 and 1997, respectively. T h e escrow requirement will expire on April 1, 1998. All escrow funds will be invested for the benefit of the University as part of its investment portfolio.