Repository: UIHistories Project: Board of Trustees Minutes - 1978 [PAGE 538]

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1978]

UNIVERSITY OF ILLINOIS

525

reserve which is permitted to earn through Internal Revenue Service (IRS) rules on arbitrage. This exchange includes about $22,374 million. 2. Advance re-funding bonds of about $59,880 million, estimated to cost 6.35 percent, are sold and (like) book entry bonds are purchased and escrowed, yielding by IRS rules an amount equal to about 6.35 percent on the sale, plus allowable costs of the re-funding. These bonds, plus earnings on the special account and the debt service reserve, more than pay the debt service on the old bonds. Note: A few series will be "called" (retired) where the coupon rate exceeds the new anticipated rate. 3. If the above is successfully completed, a new parity issue would be sold ninetyone days later of up to $31 million. M r . Brady a n d staff presented additional information at t h e m e e t i n g of t h e c o m m i t t e e t o illustrate t h e c o n c e p t of the refinancing program. T h i s i n c l u d e d the f o l l o w i n g list of "principles" (or steps) that m i g h t be taken to implement the program: 1. Endorse the concept of restructuring existing debt (including University Foundation debt), 2. Endorse the employment of A. G. Becker, Inc., as a financial adviser and Chapman & Cutler as bond counsel, 3. Endorse the concept of a planned underwriting for the re-funding bond issue, 4. Endorse the list of proposed projects, 5. Endorse a public auction of the new projects' bonds ninety-one days after restructuring existing debt, 6. Endorse the concept of authorizing much larger tuition pledges for bond rating purposes only — not the use of such funds, and 7. Endorse the timetable of closing by June 30 on re-fund bonds sold to establish the system. I n addition, t h e following a d v a n t a g e s of a restructuring p l a n were

cited:

1. Reduction of current debt service reserve requirement (current coverage equals approximately IVi years debt service; new coverage requirement equals 1 year debt service), 2. Increased rate of return on investment of reserves (current rate of return is approximately 6.2 percent; new investment pool will return approximately 8.0 percent — estimated cash gain of almost $700,000 per year), 3. Cash flow savings over the next seventeen years sufficient to allow the financing of up to $31.2 million of repairs and renovations and new projects, 4. Simplification of accounting, reporting, and investment procedures (e.g., the system requires only one debt service reserve and one repair and replacement reserve), 5. Improved national credit rating potential, 6. Improved ability for raising new construction funds (bonds sold in the future) at lower interest rates, 7. Improved security for bond holders (the revenue base of each entity will be pledged in support of the total system), and 8. Debt currently held by the University Foundation (Intramural-Physical Education Building and Stadium will be incorporated in the system).

The members of the committee discussed the general intent of the proposal, with particular attention to the alternatives available for the use of funds derived from the plan. They also received, but did not dis-