(Note: OLPM sections on this page may be cited following the format of, for example, "BOT.IV.B.1". These policies may be amended at any time, do not constitute an employment contract, and are provided here only for ease of reference and without any warranty of accuracy. See OLPM Main Menu for details.)
B. Internal Borrowing
- Loans will be considered only after all other sources of funds have been reviewed and when the loan is needed to support a pressing need or special opportunity for an institution. Internal and external borrowing will be considered, and a recommendation made by the Treasurer based on the specific facts and circumstances including impact on key financial indicators, current and future debt capacity and credit ratings, eligibility for HEFA funding or state capital appropriation, cost of capital, debt issuance costs, terms of repayment, etc.
- All borrowing must be repaid within five to 20 years. In no case may the term of the borrowing exceed the estimated useful life of the asset being financed.
- Operating losses may not be capitalized through internal borrowing.
- All loans must be supported by a payback schedule that defines a source of revenue that is of sufficiently low risk to reasonably assure repayment over time. Where there is any discernible risk identified in the revenue streams for repayment (e.g., fund raising or revenues from a new venture), the borrowing institution must identify appropriate backstop funding to ensure repayment of the internal borrowing.
- All loans must be repaid with interest. The interest rate applied will be based on the rate that would have been earned had the capital been invested. For borrowings of five years or less, the interest rate may be variable or fixed and may not be less than the average short-term investment rate of return for the University System. For borrowings of more than five years, the interest rate will be fixed and may not be less than the current applicable U.S. Treasury rates as depicted on the Treasury yield curve in the Wall Street Journal.
- Requests for internal loans are submitted to the Treasurer by the campus chief executive officer. The Treasurer reviews loan requests and submits them with recommendations to the Administrative Board.
- Each instance of internal borrowing of greater than $5 million or with a repayment period exceeding 5 years, and any instance of internal borrowing where 100% concurrence of the Administrative Board does not exist, must be approved by the Financial Affairs Committee.
- Each instance of internal borrowing of $5 million or less and with a repayment period of 5 years or less must be approved by the Administrative Board and Treasurer and reported on a timely basis to the Financial Affairs Committee. No loans may be made from quasi-endowment funds without the approval of the full Board of Trustees. The General Counsel will review loans to ensure that they do not conflict with state statutes.
- Each new internal borrowing reported to or submitted for consideration by the Financial Affairs Committee will be accompanied by a statement from the Treasurer showing the current status of all outstanding internal loans and the current remaining internal borrowing capacity as determined annually as specified by the Investment Guidelines. Total internal borrowings may not cause the projected remaining cash balances to be less than projected cash needs as determined by the Treasurer. (See also BOT VI.A, Capital Planning and Budgeting, for additional stipulations with respect to project and financing approvals.)
