General guidelines for debt financing
- The university borrows (through the issuance of tax-exempt bonds) money to finance construction cash flows or the acquisition of capital assets related to projects, approved by the Regents, for which the university does not have specific cash reserves on hand.
- The university may also borrow at taxable rates to finance operating cash flows and certain capital projects.
- The Regents of the University of Michigan, a constitutional corporation, has the authority to issue debt secured by revenues they control. (Article VIII, Section 5 of the Constitution of the State of Michigan.)
- The university issues debt backed by various revenue streams, which the Regents control. Currently, general revenues and hospital revenues are pledged for new debt.
- The university will utilize tax-exempt commercial paper and public variable/fixed rate bonds to finance the capital projects of the university. For working capital needs and some capital projects, the university may utilize taxable commercial paper.
- To minimize the cost of financing, the university will maintain a level of floating rate debt in its debt structure. Floating rate debt lowers the cost of borrowing but adds volatility to the debt service of the university.
- The Treasurer’s Office regularly monitors interest rates in the market to determine what debt issues could be refinanced to lower the cost of borrowing.
- The university’s current general revenue long term debt rating is Aaa/AAA (Moody’s/S&P). The university’s current hospital revenue long term debt rating is Aa2/AA+ (Moody’s/S&P). The university's debt ratings were affirmed by Moody's and S&P in May 2009.