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Debt and Continuing Disclosure (Policy)
Office of Origin: Chief Financial Officer
Responsibility: Chief Financial Officer
Original Date Adopted: 3-23-11
Dates Reviewed: 1-15-12, 1-11-18, 5-5-21(C)
Last Date Approved by Board: 4-17-18
This policy provides an overarching framework under which financing decisions are made. In general, Lake Michigan College (the College) commits to the following:
- Pursuing overall financial outcomes and ratios that are consistent with maintaining a strong financial profile and solid credit rating (i.e., AA or above) in order to access financial markets at the most favorable terms.
- Considering the impact of strategic decisions on credit ratings (e.g., potential to negatively impact credit rating and increase borrowing costs.)
- Evaluating all funding/financing options to determine the best structure for obtaining the lowest cost of capital while still achieving strategic goals.
- Coordinating funding/financing planning with capital planning to optimize debt and investment management strategies (e.g., accelerating the start or completion of projects.)
- Generally favoring debt financing only for projects that are critical to attaining strategic goals or for projects with identified, quantifiable revenue streams for repayment of debt costs.
- Ensuring debt issuances are in compliance with all Federal and State laws and regulations.
- Full and timely payment of principal and interest on all outstanding debt.
- Reviewing annually the College’s debt portfolio to ensure the most favorable capital cost and borrowing terms.
- Using the services of qualified outside advisors, including bond counsel and financial advisors, to assist in the analysis, evaluation, and decision processes.
- Maintaining transparency and open communications with bond rating agencies to ensure complete and clear understanding of the College’s credit worthiness.
- Completely and accurately disclosing the financial condition and operating results in all financial reports and bond official statements (if issued.)
- Ensuring post-issuance compliance procedures and controls related to financial and legal obligations are understood and adhered to.
Project Financing Analysis
Although the use of debt can play a critical role in financing capital plans and at times provide a source of funding for other purposes, the College’s philosophy views debt as a limited resource that must be undertaken thoughtfully and managed strategically to best support College priorities.
Towards that end, the Chief Financial Officer (CFO) will assess all alternatives for funding capital improvements prior to issuing debt. “Pay-as-you-go” financing (i.e., self-funding) will be considered before issuing any debt, as will grant funding, Foundation contributions, and public/private partnerships. Once the CFO has determined that other sources are not feasible funding options, the CFO may consider short-term or long-term debt financing.
If the CFO determines it is appropriate to consider debt, the CFO will analyze long term financial and capital plans, current and projected financial position, and financial policies to assess the ability to repay current and future debt. The CFO will recommend how much new debt, if any, the College may authorize.
If the CFO determines it is appropriate to pursue new debt, all potential funding sources will be evaluated, including consideration of costs, benefits, and risks as well as ongoing compliance requirements. The CFO will recommend to the Board of Trustees the financing method that achieves the strategic goals of the College while minimizing financing costs.
Authority to Issue Debt & Special Considerations
All debt issued must be authorized in advance through a Board of Trustees (the Board) resolution whereby the financing parameters for each debt issuance are established.
Special considerations of certain types of debt financing are as follows.
- Debt issuances may be through competitive, negotiated, or private placement, subject to statute.
- If tax-exempt debt is to be issued, the Board of Trustees should approve a Reimbursement Resolution that declares the official intent to reimburse qualified expenditure with proceeds of the debt. An issuer may reimburse itself for certain expenditures made up to 60 days prior to the date of the reimbursement resolution.
- Tax-exempt debt is generally the preferred manner of financing due to perceived cost savings. When tax-exempt debt is issued, the College will strictly comply with Internal Revenue Service regulations governing such.
- Taxable debt may be considered when capital projects do not qualify for tax-exempt debt or when other considerations are prevalent, such as cost, expediency, liquidity, etc.
- Alternative financing structures may also be considered, including third-party financing, developer-based financing, sale-leasebacks, capital leases, and off-balance sheet financings, as allowed by Federal and State regulations. Under no circumstances will any financing be employed that is not understood fully by the Board.
In connection with the issuance of certain debt, the College is required to issue disclosure information to comply with Securities & Exchange Commission (SEC) Rule 15c2-12 under the Securities Exchange Act of 1934. These requirements include continuing disclosure of annual financial information and notice of certain material events. Accordingly, the College will have in place appropriate controls to ensure all such requirements are met on a full and timely basis.