14.1 Apply for Project Financing

Policy Statement

Large capital projects can be financed by the issuance of external debt or through an internal lending program administered by the System Office of Treasury Operations. Treasury Operations maintains board approved debt policy governing external debt and internal loans information. General terms of financing opportunities available to support project and equipment financing are below.

Reason for the Policy

The reason for this policy is to govern the liabilities of each University’s obligation of System Office and external debt, and to maintain the University’s debt portfolio and credit ratings in compliance with internal lending policies and Board approved debt policy.

Policy Applicability

This policy applies to units seeking project financing to fund major capital projects or equipment purchases, in whole or in part, with a repayment schedule over a defined term.

Procedure

To apply for project financing (external debt or internal loan):

1. Initial Consultation: The unit initiates the financing process by consulting with the Office of Capital Financing (Capital Financing) to evaluate project feasibility and determine financing approach (external financing or internal loan).
2. Application: In coordination with the unit’s business officer, a comprehensive business plan is developed that includes the project name and sponsoring unit; a summary of the project’s purpose, scope, and priority; estimated total project costs with sources and uses of funds; the timing and description of all funding sources; a projected timeline for expenditures and completion; repayment analysis; the unit’s financial performance in prior fiscal years; and a complete listing of all existing debt obligations. For internal loans, the unit completes an Internal Loan Application and solicits all required university signatures for submission to Capital Financing.
3. Review and Recommendation: Capital Financing evaluates each request and determines the appropriate project financing approach, including assessing debt capacity, financing structure and terms and the Assistant Vice President, Treasury Operations and Capital Markets (AVPTO) submits each financing request for approval to the Associate Vice President, Controller, and Deputy Comptroller (Controller); and the Vice President, Chief Financial Officer, and Comptroller (Comptroller).
4. Financing Approval: When project financing has been approved, Capital Financing prepares a formal loan agreement for internal loans detailing the term, repayment and conditions of the loan transaction. The requesting department is required to gather the university signatures needed and approval to return to Capital Financing, who solicits the Comptroller’s signature. Upon approval of external financing, Capital Financing works with the department to provide appropriate language used in Board of Trustee items prior to board approval. Capital Financing will concurrently draft and prepare the required documents and board approval to issue external debt.
5. Accounting Setup and Payment Processing: Capital Financing coordinates with University Accounting and Financial Reporting (UAFR) to establish the internal loan funds or bond project funds where expenses associated with the project can be placed. UAFR maintains schedules of loan and debt repayment obligations and will assess payment on departments according to their loan documents.

Exceptions

The Comptroller, with notification to the President, may issue internal loans with exceptions to policy.

Guidelines

Project financing may be used for construction, renovation, or infrastructure expenses, equipment purchases, and energy conservation initiatives. Internal loans and debt financing cannot be made for working capital.

External financings are structured in alignment with the University of Illinois System’s debt capacity and credit rating objectives and are issued as Auxiliary Facilities System Revenue Bonds (AFS), Health Services Facilities Revenue Bonds (HSFS), Certificates of Participation (COPs) or Energy Savings Contracts (ESCOs). Capital Financing will evaluate both fixed-rate or variable-rate and taxable or tax-exempt debt structures to appropriately balance cost and risk.

Public Private Partnerships (P3) have served as the financing and delivery method for several facilities across the University. P3 projects are coordinated and led by the System Office of Capital Programs and Real Estate Services.

The system’s internal loan program is limited to $125 million in total loans outstanding. Available internal loan capacity for each campus is reviewed annually by Capital Financing. Principal on internal loans is repaid annually, and interest is calculated quarterly on the average outstanding balance and administered by University Accounting and Financial Reporting (UAFR).

Each internal loan agreement will establish the estimated interest and principal payment due for the requesting unit. Internal loan interest rates are reviewed annually. Long-Term interest rates for loans up to 10 years are based on the prior 12-month average of the Barclays Capital Intermediate Aggregate Bond Index yield and is never less than 3%. Long-term internal loans are subject to rate revisions when the annual rate review differs from the current rate by 1% or more. Short-term internal loans are issued based on the annual review of the JP Morgan Prime Money Market Fund Yield and are never less than 1%.