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?
- 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, firstname.lastname@example.org
Revision History: Approved by the Board of Trustees, October 7, 2016