tax exempt bonds as a financing tool cornell university patricia a. johnson treasurer april 18, 2008
TRANSCRIPT
Tax Exempt Bonds as a Financing Tool
Cornell UniversityPatricia A. Johnson
TreasurerApril 18, 2008
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• Private research university which operates six endowed schools and four state supported schools in Ithaca, NY
• Medical College operated in New York, NY• New York land grant institution• 21,000 students
Cornell University
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• $10.1 billion in assets• $6.4 billion in investments• $2.2 billion in liabilities
• $2.5 billion in revenue• $2.5 billion in expenses• $7.8 billion in net assets
Financial Data(as of June 30, 2007)
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Moody’s Aa1Standard & Poor’s AA+
Cornell Debt Rating
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Why use tax exempt funding?
•Pro’s– Lowest cost of debt
•Con’s– Expensive to Issue
– Compliance is time consuming and on-going
– Involves an issuer, attorneys, underwriter and rating agencies
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Other$14,604
2%
Variable Rate Demand Bonds
$254,82032%
Auction Rate Bonds$90,150
11%Tax-Exempt CP $89,005
11%
Taxable CP$86,979
11%
Tax-Exempt Fixed Rate Bonds
$258,21033%
Variable Rate Demand Bonds $254,820 32%
Tax-Exempt 7-Day Auctions $90,150 11%
Taxable Commercial Paper $86,979 11%
Tax-Exempt Fixed Rate Bonds/ Debt $258,210 33%
Tax-Exempt Commercial Paper $89,005 11%
Other $14,604 2%
$793,768 100%
Cornell Core Debtas of June 30, 2007
(in thousands)
Fixed/Variable Mix Breakdown of Debt by Product
Fixed Rate$277,149
35%
Variable Rate
$183,28423%
Synthetic Fixed Rate $333,335
42%
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Estimated
Budget Bridge
Financing Long Term
Financing
Research $474,573 $214,620 $109,669
Program 220,573 63,701 12,400
Student Support 260,350 99,368 9,350
Renovations/Renewals 447,238 3,000 90,205
Infrastructure 294,775 5,000 93,285
Total Ithaca Campus $1,697,509 $385,689 $314,909
Weill Medical College 1,056,164 50,000 192,509
Total Approved Projects $2,753,673 $435,689 $507,418
Approved Projects(in thousands)
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Issue Process Timeline: Three to Four Months
• Issue long term bonds every two years• Assemble the team
– Issuing Agency– Bond Counsel– Underwriter– Underwriter’s Counsel– Internal Staff
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Issue Process (continued)
• Trustee approval of indebtedness and use of tax exempt funds
• Environmental studies• Public hearings• Reimbursements follow guidelines for
approved costs
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• Approved Project Approval Request (PAR)– Is financing needed? Forward to Treasurer’s Office
• Treasurer’s Office determines source of debt– Bridge financing– Long-term financing
• Quarterly meetings with University Budget Office
Internal Loan Process
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• Document all projects which received tax- exempt funding by reviewing closing documents and draw down schedules
• Contact (or assign) tax exempt coordinator for every project
• Include infrastructure projects such as utility projects not specific to a building, land improvements, etc.
Due Diligence Process for Private Use
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• Questionnaire to be filled out by coordinator at issuance of loan
• Follow-up with on-site visits• Questionnaire will be updated every two
years• Site visits will occur as necessary
Due Diligence Process for Private Use (continued)
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Auction Rates
Wanted to diversify product offering,
• Closing for reoffering was April 10, 2008• Auction failed by not providing a market
for the “put”• Costs to Cornell 200 bp above LIBOR or
maximum 6.26%• Issued variable rate demand obligations
with a liquidity facility
