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Board of Regents Meeting December 4-5_ 2008 Agenda Item _ 21

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Board of Regents Meeting December 4-5_ 2008 Agenda Item _ 21 Powered By Docstoc
					                                                                     Board of Regents Meeting
                                                                     December 4-5, 2008
                                                                     Agenda Item # 21
EXECUTIVE SUMMARY                                                    Page 1 of 4


   ITEM NAME:         Issuance of SPEED Revenue Bonds for Financing of SPEED
                      Projects (NAU)

                           Action Item           Discussion Item             Information Item

   Issue:       Northern Arizona University seeks Board authorization to sell SPEED Revenue
   Bonds (1) not to exceed $64.14 million for paying the costs associated with five building
   renewal projects; (2) not to exceed $675,000 to pay costs of issuance; (3) to make payments
   to a bond insurer or other credit enhancer provided that such payments provide a benefit that
   exceeds the amount of such payments; and (4)to make payments pursuant to any related
   interest rate swap or lock agreements.


   Previous Board Action: Project Implementation and Project Approval:            September 2008
                          SPEED Projects Allocation:                              July 2008
                          Capital Development Plan:                               June 2008


   Projects to be financed:

   The proceeds of the bond issuance will be used to finance the NAU capital projects set forth
   below:

          Skydome ADA/
          Health Issues                                             $21,900,000
          Liberal Arts                                              $ 8,900,000
          Hotel Restaurant                                          $ 7,340,000
          North Utilities                                           $22,000,000
          North Union                                               $ 4,000,000

   Proceeds of the bond sale will also be used to pay the costs of issuing the bonds.


   Statutory/Policy Requirements:

    Board Policy 7-102D requires Capital Committee review and Board approval of all bond
     and COPs financings.

    A.R.S. 15-1682.03 provides for the University Capital Improvement Lease-to-Own and
     Bond Fund, funded by up to 80% from the State Lottery and at least 20% from the
     universities

CONTACT:
Kathe Shinham, VP Administration & Finance 928-523-6104             Kathe.Shinham@nau.edu
                                                                    Board of Regents Meeting
                                                                    December 4-5, 2008
                                                                    Agenda Item # 21
EXECUTIVE SUMMARY                                                   Page 2 of 4



  Background:

   In conjunction with the Stimulus Package for Economic and Educational Development
    (SPEED) initiative, Northern Arizona University (NAU) requests authority to sell its
    initial issuance of SPEED Revenue Bonds in an amount to produce sufficient proceeds to
    finance five building renewal projects as outlined herein and the related costs of issuance,
    and to take all related actions and enter into all necessary agreements related to the bonds.
    The SPEED Bonds will be secured by and payable from the newly created University
    Capital Improvement Lease-to-Own and Bond Fund (the “SPEED Fund”) established
    during the last legislative session. Pursuant to that legislation, 80% of the annual debt
    service payments for the SPEED Bonds is to be provided from revenues generated by the
    State’s lottery and 20% from amounts annually budgeted and provided by the Board from
    the University’s revenues, all of which are deposited to the SPEED Fund. In order to
    provide the necessary security and credit support to be able to sell the SPEED Bonds to
    investors, the Bonds will be further secured by a subordinate lien on the gross system
    revenues of the University that are pledged to its System Revenue Bonds.


  Fiscal and Financing Plan:

   NAU intends to finance the construction and improvement of the capital projects listed
    above by issuing one or more series of SPEED Revenue Bonds. The Bonds will be
    secured by and payable from monies deposited to the SPEED Fund, which is
    administered by the Board. Up to 80% the annual debt service payments on the Bonds is
    to be provided from distributions of revenues generated by the State’s lottery and not less
    than 20% of the annual debt service payments are to be provided by University funds
    deposited to the SPEED Fund by the Board on behalf of the University.

   The SPEED funding mechanism provides monies for 100% of the annual debt service
    payments on the Bonds. However, in order to obtain an investment grade rating on the
    Bonds, as well as to be able to obtain investors willing to purchase the Bonds, additional
    security must be provided to create debt service coverage on the Bond payments. To
    accomplish that, the Board on behalf of the University will provide that the Bonds are
    further secured by and payable from a subordinate lien on the University’s gross system
    revenues. The lien will be subordinate to the pledge of these revenues that secures the
    University’s existing and future System Revenue Bonds.

   The bonds will likely be sold based solely on the credit ratings assigned to the
    University’s SPEED Bonds. While ratings have not yet been obtained on the Bonds, the
    expectation is that the Bonds will carry ratings somewhere in the “A” category. The
    University will also solicit bond insurance and fee quotes from select bond insurers, with
    the use of bond insurance only occurring if it provides a benefit to the Board and the
    University, net of paying the cost of the insurance.
                                                                    Board of Regents Meeting
                                                                    December 4-5, 2008
                                                                    Agenda Item # 21
EXECUTIVE SUMMARY                                                   Page 3 of 4

   The bonds will be sold at a tax-exempt interest rate and the true interest cost for the
    bonds is not expected to exceed 7.0%. Pursuant to the statutes, the SPEED initiative
    projects are exempt from the debt ratio requirements. However, if the debt were to be
    included in the ratio, with the issuance of these bonds, NAU’s debt ratio would not
    exceed 5.99% for the statutory limit.

   The financing is designed to be structured conservatively around projections of estimated
    lottery revenues, with interest-only payments for the first 5 years of the debt service.
    Following that, the debt service is structured with level annual debt service payments
    through the final maturity in 20 years.

   NAU will be called upon to enter into various agreements in conjunction with the bonds.
    These may include a bond insurance agreement (provided that it lowers the net borrowing
    cost), a continuing disclosure agreement and a bond purchase agreement.

   For the proposed financing, NAU intends to use Ballard Spahr Andrews & Ingersoll, LLP
    as bond counsel and RBC Capital Markets as financial advisor, each of whom was
    selected through a competitive proposal process. The bonds will be marketed and sold on
    a negotiated basis by one or more investment banking firms. NAU will select the banking
    firms through a competitive proposal process.

   The action requested will authorize NAU to execute this financing within the parameters
    approved by the Board. It is anticipated the initial series of SPEED Revenue Bonds will
    be sold and closed in February 2009.

  Committee Review and Recommendation:

  The Capital Committee reviewed this item at its November 19, 2008 meeting and
  recommended Board approval for NAU authority to:
  1. Issue $26.3 million for project and issuance costs, and to take related necessary actions,
      and
  2. Issue an additional $38.5 million for project and issuance costs, and to take related
      necessary actions, provided necessary legal requirements have been met.

  Recommendation:

  Resolved: That Northern Arizona University be, and hereby is, authorized to sell one or more
  series of SPEED Revenue Bonds to produce sufficient proceeds to finance (1) not to exceed
  $64.14 million for paying the costs associated with five building renewal projects; (2) not to
  exceed $675,000 to pay costs of issuance; (3) payments to a bond insurer or other credit
  enhancer provided that such payments provide a benefit that exceeds the amount of such
  payments; and ( 4) payments pursuant to any related interest rate swap or lock agreements.
  The SPEED Bonds are authorized to be secured by and payable from monies deposited to the
  University Capital Improvement Lease-to-Own and Bond Fund established by Arizona
  Revised Statutes section 15-1682.03 and by a subordinate lien on the University’s system
  revenues that are pledged to system revenue bonds. The University would be further
                                                                   Board of Regents Meeting
                                                                   December 4-5, 2008
                                                                   Agenda Item # 21
EXECUTIVE SUMMARY                                                  Page 4 of 4

  authorized to sell the SPEED Bonds at a price at, above or below par and at a fixed rate of
  interest; to take related actions; and to enter into necessary agreements and to execute all
  necessary documents including those related to bond insurance or other credit enhancement
  and derivative agreements, all as more fully provided in a Board resolution reviewed by
  Board Counsel.

				
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