The Board of Trustees is authorized to issue bonds to:

• Construct buildings, structures, parking facilities, or other improvements which the Board deems proper or suitable for the school and to purchase sites therefore, if necessary;
• Purchase for such purpose buildings already constructed and the tracts of land on which they are situated;
• Reconstruct, enlarge or repair, and equip any buildings or structures of the University; and
• Purchase for such purposes and pay the expense of tearing down, removing to the school, reconstructing, and equipping houses, buildings or structures.

The Board may also issue refunding bonds to refinance existing debt as follows:

• For savings or for other reasons (change in use of project financed or covenant relief).
• If, for tax-exempt refunding bonds, the redemption date for the bonds being refunded is not over 90 days from the refunding issuance date. (Tax Cuts and Jobs Act removed tax-exemption for advance refunding bonds.)

In considering tax-exempt bonds vs. taxable bonds, the following should be considered:

• The Board of Trustees, as a governmental entity, has the authority to issue tax-exempt bonds.
  • Investors expect a lower return on their investment if they do not have to pay income tax on the interest income, and this lowers the University’s borrowing costs
  • Tax-Exempt/Taxable spread
• Tax-exempt bonds are a federal subsidy, and there are strings attached.
  • Private business use limitations (special legal entitlement for use of a bond-financed property to a nongovernmental entity or the federal government)
  • Arbitrage limitations
  • Spend money within reasonable time (generally 3 years)
• UA System campuses may want or need to use taxable bonds if a portion of the proceeds may be for private business use.
  • Each bond issue is allowed a de minimis amount of private business use (10% or 5%, depending on the use).
  • Advantageous for flexibility.
  • Food service, bookstores, retail, leases, naming rights, research contracts, Greek houses
  • Each campus should have a representative that is responsible for monitoring compliance with private business use rules.

Steps for a Bond Issue:

• Campus identifies capital project. If a Financial Advisor (FA) is involved, campus engages with FA on debt structures, estimated debt service impacts and costs and financial feasibility of project.
• Campus provides the President with a request for approval to begin selections of an architect and general contractor and completes a Capital Project Proposal Form. Campus asks to include project on the agenda for Board of Trustees Buildings and Grounds Committee approval. The President makes the decision to approve and sends a letter to the campus.
• Campus provides information to the Buildings and Grounds Committee for approval of the project and the results of the search for an architect and general contractor. These are sent to the President’s Office for inclusion in the agenda book. Once the committee approves the agenda item, the full Board votes on the item.
• Campus coordinates with the System Office on selection of financing team for issuance of bonds.
  • FA is selected, if desired. FA is not required.
  • Bond Counsel selected from approved list after consultation with General Counsel.
  • Underwriter selection from approved pool after consultation with System Office or if using an FA, pricing obtained from underwriter pool and recommendation from FA.
• Board adopts intent/reimbursement resolution
  • Hires professionals
  • Important if campus is ready to start spending funds/reserves on a project and the financing is not yet ready to move forward
• Campus works with System Office, FA (if using) and Bond Counsel on drafting Authorizing Resolution and principal documentation packet to be included on the agenda for the Board of Trustees Audit and Fiscal Responsibility Committee.
• Bond counsel performs tax due diligence and allocation between tax-exempt and taxable bonds, if necessary.
• Board adopts Authorizing Resolution after the Audit and Fiscal Responsibility Committee approves it.
  • Identifies project and determines that there is a need for the project
  • Sets parameters under which the bonds are authorized to be issued and under which a Bond Purchase Agreement may be signed:
    • Maximum principal amount
    • Maturity date limit
    • Maximum “true interest cost” percentage
    • In a refunding, the minimum savings threshold (3% is historically the norm)
  • Authorizes the principal documents in “substantial form.” The principal documents, which are drafted by bond counsel with input from the system and campus, must be drafted in advance of the board meeting. These documents include:
    • Trust Indenture or Series Indenture – principal security document between the board and the trustee for the bonds.
    • Bond Purchase Agreement – contract between the board and the underwriter(s) for the sale of the bonds. Executed when the bonds are “sold.”
    • Continuing Disclosure Agreement – contract between the board and the trustee under which the board agrees to make annual disclosures and to provide notices of certain events. Required by federal securities law.
    • Preliminary Official Statement – the preliminary prospectus used by the underwriters to market the bonds to potential investors.
      • Information threshold for POS – The document should not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements contained therein, in the light of the circumstances under which they were made, not misleading.
  • Authorizes other closing certificates and documents.
  • Underwriter(s) and bond counsel selected by the board
• Once the board resolution is approved, contact ADHE to get on the agenda for the Higher Education Coordinating Board for approval of the economic feasibility of the bond issue.
• Rating call with Moody’s.
• Rating is received along with confirmation of key ratios.
• Preliminary Official Statement is released to potential investors. Marketing period occurs.
• Pricing process
  • Negotiated sale process
    • Agreement on pre-marketing levels (FA and UW)
    • Pre-pricing calls (FA, UW, campus and system)
  • Pricing; UA signs Bond Purchase Agreement and rates are locked in.
• Closing document preparation and document execution (Chairman, Secretary, President, Campus CFO)
• Closing/funds become available.