Repository: UIHistories Project: Board of Trustees Minutes - 1978 [PAGE 537]

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BOARD OF TRUSTEES

[February 15

T h e committee met to consider a subject introduced at the January 1978 meeting of the Finance Committee, the refinancing of University revenue bonds. T h e refinancing plan, developed on the basis of internal analysis and advice from financial consultants, was summarized in a m e m o r a n d u m of February 9 from Vice President Brady t o t h e trustees. ( T h e full text of information presented to the trustees is filed with the secretary for record.) Excerpts from t h e February 9 m e m o r a n d u m convey the essence of the proposal: RE-FUNDING OF UNIVERSITY OF ILLINOIS REVENUE BONDS Preliminary, b u t exhaustive, analysis and evaluation of the present debt structure of all revenue bond facilities have been completed by A, G. Becker, Inc., and verified independently by the Business Office and by our Planning and Analysis Office. This report is being prepared at the request of President Corbally as a brief review of the process and of the rationale in favor of re-funding our existing revenue bonds. More detail will be presented at the board meetings in February and March. General T h e process of re-funding our revenue bonds is complicated and detailed. T h e concept and outcome are fairly straightforward. If the assumptions that we are currently satisfied with prove valid as we move forward, it is possible to re-fund our bonds and create the ability to finance not less than $25 million in repairs, renovations, and new stuctures, without increasing any funding source (student services fees, fee retention, or fee exemptions) for this purpose. Note: I t is possible that we will want to ask the board to consider the elimination of tuition retention upon the creation of the new system, but the decision to do so is independent of the financial structure of refunding. It is also a part of this program to finance permanently the I n t r a m u r a l Physical Education Building and the Stadium (at Urbana) so as to eliminate the debt of the University Foundation with respect to these facilities. T h e first and obvious question is, how can this be done? There are a few important concepts to keep in mind as the details are set forth. 1. Under our present system, the debt requirements start to diminish measurably in 1997 and go down dramatically toward the year 2006. Under the new system, the debt service is leveled at the 1980 amount (the highest year) until the year 2006 and a final large payment is made in 2007 from a special reserve which is created as a part of the new system. 2. As a part of exchanging securities with the Department of Housing and Urban Development ( H U D ) , new debt service reserve requirements are established. This process produces a special reserve of almost $17.0 million, which is invested in high-yield securities (8.0 percent estimated), which helps to cover new debt service. A single debt service reserve of $5,985 million is also created and invested at 6.4 percent. T h e annual income from this process is $1,364 million from the former, plus $.383 million from the latter, for a total of $1,747 million. (We currently earn $1,050 million from sinking fund investments for a gain of almost $700,000 a year.) Although there are other factors involved, there are two basic concepts underlying the ability t o finance new ventures without an increase in charges. The second question is, of course, the process. 1, T h e H U D securities would be exchanged so that no differences would exist in time, amounts, or yields. T h e benefit is in the creation of part of the special