Doc. T09-050, as amended
Passed by the Board of Trustees on September 30, 2009
Latest revision: June 18, 2014

Purpose

To fulfill its mission, the University must make ongoing strategic capital investments in academic, student life, research, and other plant facilities using an appropriate mix of funding sources including state bonds and appropriations, University bonds, capital leases, internal reserves, operating funds, grants, and private gifts.

The purpose of the Debt Policy is to ensure the appropriate mix of funding sources is utilized and to provide guidance on the strategic use of debt (external and internal). Debt is a valuable source of capital project financing but should be limited to projects that relate to the mission and strategic objectives of the University consistent with its capital planning process. The amount of debt incurred has an impact on the financial health of the University and its credit rating.

This Policy provides a discipline and framework to be used by senior administration to evaluate the appropriate use of debt in capital financing plans.

I. Introduction

This policy will assist University management in the evaluation of internal and external debt while seeking to maintain an acceptable credit rating and sufficient liquidity. Although the attainment or maintenance of a specific rating is not the main objective of this policy, maintaining an acceptable credit rating that is the same or better than current rating levels will permit the University to continue to issue debt and finance capital investments at favorable interest rates. The University, consistent with its capital objectives, will limit its external debt to a level that will maintain an acceptable credit rating with bond rating agencies.

Management will use quantitative tests to evaluate the University’s overall financial health, liquidity, present and future debt capacity. In addition, project-specific analysis, as appropriate, will be used to determine the financial feasibility of an individual project.

II. Policy Statement

  1. The University will only incur debt in strict compliance with applicable state and federal law and with debt-related contractual covenants.
  2. The University may incur debt to refinance existing debt or to fund capital projects that are consistent with the University’s mission and strategic priorities and/or the University’s capital plan.
  3. The University will incur external debt only with the prior approval of the Board of Trustees and the Commonwealth of Massachusetts as required.
  4. The ratio of debt service to operating expenses should be no greater than 8% for the University or a campus. An individual campus may exceed 8% if so authorized by a vote of the Board of Trustees, but may at no time exceed 10%.
  5. Management will promote the integration of long-term financial planning with long-term capital planning while incorporating sound financial practices and proactive resource management.
  6. Management shall seek the best possible national credit ratings based on an analysis of economic and market conditions and the University’s capital plan.
  7. The University may incur debt bearing interest at variable rates when advantageous based on market conditions and will limit debt portfolio risk to appropriate levels as determined by the Senior Vice President for Administration & Finance in consultation with the President and Board of Trustees.
  8. The University shall not enter into debt-related derivative transactions for speculative purposes, but rather may use debt-related derivatives to limit risks and to provide appropriate protection.

III. Standards

The President, in consultation with the Vice President(s) and Chancellors, will issue administrative standards to implement this policy.

 

Doc. T09-050, as amended | Debt Policy
Passed by the Board of Trustees on September 30, 2009
Revised:
June 18, 2014