University of Virginia Library

II. Scope and Objectives

Purpose

• 1. Define what activities are subject to the policy.


• 2. Define the objectives for the Debt Policy.


• 3. Establish debt management goals

Scope

The Debt Policy covers all forms of debt including long-term, short-term, fixed-rate, and variable-rate debt. It also covers other forms of financing including both on-balance sheet and off-balance sheet structures, such as leases, and other structured products used with the intent of funding capital projects.

The use of derivatives is considered when managing the debt portfolio and structuring transactions. Conditions guiding the use of derivatives are addressed in a separate Interest Rate Risk Management Policy.

Objectives

The objectives of this policy are to:

• (i) Outline the University’s philosophy on debt


• (ii) Establish a control framework for approving and managing debt


• (iii) Define reporting guidelines


• (iv) Establish debt management guidelines

The Debt Policy formalizes the link between the University’s Strategic Plan and the issuance of debt. Debt is a limited resource that must be managed strategically in order to best support University priorities.

The policy establishes a control framework to ensure that appropriate discipline is in place regarding capital rationing, reporting requirements, debt portfolio composition, debt servicing, and debt authorization. It establishes guidelines to ensure that existing and proposed debt issues are consistent with financial resources to maintain an optimal amount of leverage, a strong financial profile, and a strategically optimal credit rating.

Under this policy, debt is being managed to achieve the following goals:

• (i) Maintaining access to financial markets: capital, money, and bank markets.


• (ii) Managing the University’s credit rating to meet its strategic objectives while maintaining the highest acceptable creditworthiness and most favorable relative cost of capital and borrowing terms;

• (iii)Optimizing the University’s debt mix (i.e., short-term and long-term, fixed-rate and floating-rate, traditional and synthetic) for the University's debt portfolio;


• (iv)Managing the structure and maturity profile of debt to meet liquidity objectives and make funds available to support future capital projects and strategic initiatives;


• (v) Coordinating debt management decisions with asset management decisions to optimize overall funding and portfolio management strategies.

The University may use debt to accomplish critical priorities by more prudently using debt financing to accelerate the initiation or completion of certain projects, where appropriate. As part of its review of each project, the University evaluates all funding sources to determine the optimal funding structure to achieve the lowest cost of capital.