Your Federal Quarterly Tax Payments are due April 15th Get Help Now >>

Commercial PaperEquipment Financing Program by leader6

VIEWS: 3 PAGES: 3

									                                                                                    FINAL
                                                                                     7/2/07
                  Commercial Paper/Equipment Financing Program

                                                             Policies and Procedures –
                              Revised based on Task Force Meeting of November 1, 2005
                          Further revisions from FOA, AOA, and bond counsel comments

Purpose of Policy and Procedures: To provide guidelines for the use of the tax exempt
commercial paper program in providing financing mechanisms (leases) for standard
equipment, CMS project and other hardware and software program costs, and certain
specialized equipment.

Goal of Financing Program: To provide a lower cost alternative to the vendor-provided
financing available to the CSU campuses and Chancellor’s Office for equipment, to
consolidate and standardize the approach to equipment financing for campuses, and to
minimize the risk associated with this type of financing. Financing will be provided to
campuses and the CO on a first come, first served basis. The initial size of the program
will be limited to $100 million of financing outstanding, to be increased as determined by
the CSU Chief Financial Officer. Current arrangements with equipment
leasing/financing firms will be maintained and will continue to provide an alternative to
this program.

Types of Equipment Financed:
       Can be generally defined as personal property, not real property,
       Upon completion of a lease agreement, title for the equipment transfers to the
          CSU from the CSU Institute; the lease is not an operating lease,
       Equipment that is essential to the CSU mission,
       Equipment is eligible to be tax-exempt financed according to IRS regulation,
       Equipment that can be separately identified.

ONLY CMS FINANCINGS WILL BE MADE AT THE FIRST CP BORROWING OF
JUNE 1, 2006. Equipment will be eligible for lease financing beginning with the second
CP borrowing of September 1, 2006.

Limitations on Usage: These leases may not be used to finance equipment that will be
paid for through a federal, state, or private contract or grant or a State capital projects
allocation. This financing method may be used to finance equipment that is identified as
Group II equipment for a Nonstate Capital Project. This financing method cannot be
used for real property.

Amount of Financing: A minimum of $100,000 per financing transaction, up to
$5,000,000. Various types of equipment may be grouped together to meet the $100,000
minimum so long as their useful lives and associated repayment terms can be identified
by type of equipment.

Term of Financing: No more than 100% of the useful life of the equipment; in general,
this method will provide financing for periods of not less than one year but not more than


                                              2f743f22-6751-48db-8fa0-5ad5d5aeaba0.doc
                                                                                   FINAL
                                                                                    7/2/07
8 years. In specific instances when the acquisition and installation timing dictates, the
payment of interest and principal for equipment may be deferred by no more than 6
months after the date the equipment is installed, accepted, and available for use by the
CSU, but all interest will accrue related to the period of deferment and will be payable as
part of the cost during the repayment period. (Interest accruing for the deferral period
may be financed as part of the equipment cost only when the delay is needed to complete
the acquisition and installation of the equipment.) Amortization schedules will be
provided by Financing & Treasury at the time of financing based on full amortization of
principal during the repayment period and level debt service, as calculated using the rate
in effect at the time of financing. However, as the annual interest rate is adjusted,
principal payments will remain unchanged from the original principal payments
established and actual interest costs will be adjusted according to the annual rates set.
Campuses may execute leases for equipment that has been internally financed (e.g.
through the internal borrowing of trust funds) or externally financed, but the financing
term provided by this program shall not exceed the remaining useful life of the equipment
being financed and the amount refinanced shall be limited to the amount of principal still
outstanding.

Participants: All CSU campuses and the Chancellor’s Office. Also eligible to
participate will be authorized auxiliary organizations of CSU campuses that arrange the
financing through their campuses; campuses and auxiliary organizations will be billed
directly on a quarterly basis for their lease payments by Financing & Treasury, for
payment to the lessor (CSU Institute).

Frequency of Financing: Equipment will be financed through the issuance of
commercial paper on a quarterly basis, with financing monies provided to the
campus/CO/auxiliary or equipment vendor effective March 1st, June 1st, September 1st,
and December 1st of each year. In general, campuses and auxiliaries will be reimbursed
for equipment they have already paid for, received, and accepted; the equipment lease
and financing will provide reimbursement to the campus for their upfront payment for the
equipment. For equipment exceeding $1,000,000 in a single purchase contract, direct
pays to equipment vendors may be arranged with Financing & Treasury, with the leases
being signed simultaneously with the payment to the vendor.

Principal and Interest Payments: Principal and interest payments will be payable on a
quarterly basis, due one month in advance of each CP issuance, each February 1st, May
1st, August 1st, and November 1st. Early repayment of equipment financed may be
made quarterly; notification to Financing & Treasury of early repayment must be made
with the principal and interest payment due that quarter.

Setting of Interest Rates: Interest rates for equipment financed will be set (the “Set
Rate”) on March 1st, to apply to payments due and new equipment to be financed during
the subsequent fiscal year (effective with the August 1st payment). Financing & Treasury
will determine the Set Rate based on current commercial paper rates, as adjusted for
expected increases or decreases to commercial paper rates for the upcoming fiscal year,




                                             2f743f22-6751-48db-8fa0-5ad5d5aeaba0.doc
                                                                                  FINAL
                                                                                   7/2/07
administrative costs of the commercial paper/equipment financing program, and a margin
used to maintain a reasonable liquidity pool.

Documentation Requirements: Leases will be executed between the campuses (for
their own equipment and on behalf of their auxiliaries) and the CSU Institute for the
equipment being financed. Auxiliaries will not be able to execute equipment leases with
the CSU Institute directly and must enter into an arrangement with their campuses when
participating in this program. Title for equipment will transfer immediately to the
campus from the CSU Institute upon execution of the lease. All requests for financing
and early repayment must be authorized by the campus CFO for both campus and
auxiliary equipment. Each request for financing must include a detailed inventory of
equipment to be financed, with appropriate serial numbers, descriptions, and useful lives
for the equipment. If a deferral of repayment start date and/or the issuance of additional
CP amount to pay for interest during the acquisition/installation period is indicated, a
justification for the delay must be provided, subject to approval by Financing & Treasury.

Sale, Disposal, or Loss of Equipment: If equipment is sold, lost, or otherwise disposed
of before the end of the lease term, the amount financed will become immediately
repayable upon the next principal and interest payment date.

Capitalization of Equipment: The Capital Assets Guide (Chapter 13 of the CSU GAAP
Reporting Manual) provides guidance for campuses on establishing useful lives,
categorizing assets into asset types, methods for depreciation and componentization.
This guide has been established as a parameter and is recommended for use by all
campuses. The capital assets guide can be found on the CSU website at
http://www.calstate.edu/sfsr/gaap/.




                                             2f743f22-6751-48db-8fa0-5ad5d5aeaba0.doc

								
To top