Debt Management

It is the policy of Guilford College to (1) treat debt capacity as a limited resource that should be used, when appropriate, to enhance the College’s strategic initiatives; (2) to manage debt on a long-term, portfolio basis in a manner consistent with the College’s stated policies, objectives and Core Values; and (3) to use and allocate debt strategically, judiciously and equitably.  

Purpose/Reason for Policy: Intended for internal planning purposes only, this policy provides a framework to enable the Board and staff to:

  • Maintain the College’s access to the  capital markets
  • Access the College’s financial health and debt capacity to promote prudent planning and to ensure that the College maintains sufficient resources
  • Reduce the College’s overall cost of capital within the parameters of acceptable risk levels
  • Manage and protect the College’s credit profile at a strategically optimized levels

Scope/Covered Persons: All Trustees of Guilford College and staff who are responsible for managing the College’s debt.

The Policy: The Board has  identified the proper roles of target ratios in assessing the College’s financial health and capacity, as well as a process for monitoring and revising them going forward.

The Board has established the following Target Ratios, as well as a policy floor/ceiling for each ratio:

  • Expendable Resources to Debt – No less than 0.4x
  • Total Debt to Cash Flow – No greater than 8.0x
  • Debt Burden Ratio – No greater than 10%
  • Debt Service Coverage Ratio – No less than 1.5x

Debt Management and Transaction Structure Considerations

This policy provides the College with a general framework for approaching debt management issues and structural decisions. The following key factors will be considered in order to optimize the structure for each proposed financing option:

  • How should the College issue its debt?
  • When should variable rate or taxable debt be issued?
  • When should the College refinance its debt?

Derivative Products

  • Derivatives may be used only to manage/mitigate risk, not to speculate or increase leverage
  • The Board will established key criteria for evaluating the College’s proper uses of derivatives
  • Finance Staff will identify risks and costs associated with the use of any derivative product

Roles and Responsibilities: 

  • President: Responsibility for plan implementation and reporting.
  • Vice President for Administration & Finance: Will serve as the President’s designee in planning implementation and reporting and provide a report to the Finance Committee: (1) Identifying and, to the extent applicable, quantifying any potential risks and benefits associated with the proposed debt structure; (2) Analyzing the impact of the proposed structure on the College’s creditworthiness and debt affordability/capacity (3) Identifying risks and costs associated with the use of any derivative product
  • Finance Committee: Make recommendations to the Board regarding debt
  • Board of Trustees: Consider recommendations of the Finance Committee and maintain final approval authority over all decisions related to college debt.

Compliance: The Board is responsible for monitoring its own activity with respect to this policy, and may revise it at any time.

Other related Policies, Regulations, Statutes and Documents: 

Approval Authority: The Guilford College Board of Trustees

Responsible Office: Len Sippel, Vice President for Administration and Finance, Bauman 105B, 336.316.2841, sippellc@guilford.edu

Revision History: Approved by the Board of Trustees, October 7, 2016