On November 5, 2015, the Board of Regents approved the establishment of an Internal Lending Program ("ILP") that is used to finance projects financed with Revenue Financing System (“RFS”) debt. The ILP allows the U. T. System to better manage financial resources across the entire System rather than through individual campuses or projects. The primary objectives of the ILP include:
Provide uniform lending rates and terms across the System with institutions assuming less interest rate risk compared to prior practices, where institutions and their underlying projects bore the cost of capital at the time of borrowing.
Use a portfolio approach to better distribute debt portfolio risks across the institutions and underlying projects versus each project assuming risks of a particular financing structure. This portfolio approach provides a mechanism to enable System Administration to take advantage of more optimal debt structures that are not directly tied nor appropriate for individual projects or borrowers.
Minimize the need to issue taxable debt for projects that, under the prior debt issuance process, could not be financed on a tax-exempt basis due to private business use restrictions.
Increase funds available for strategic initiatives and long-term investment - By delinking the external and internal debt structure, System Administration can create a pool of liquidity to either invest or relend internally depending on market conditions.
Create a more sustainable and efficient debt management process for U. T. institutions and System Administration.
The ILP will be used to finance the same type of projects previously financed with RFS debt. Loans disbursed prior to September 1, 2015 have been grandfathered and are not subject to any changes to the interest rate. PUF debt and TRB debt are not included, so those processes remain the same. U. T. System institutions will effectively create loans with the ILP for capital projects and equipment that have been approved for debt financing by the Board of Regents, and the ILP will charge periodic principal and interest repayments based on a set internal loan rate. The ILP will work to maintain a stable rate and does not expect to change the rate frequently: If a change is needed, it will be communicated to the institutions during the annual budget process.
ILP loans can effectively be categorized into either Capital Project Loans and Equipment Loans. Capital Project Loans will be charged the Short-Term Rate during construction and the Long-Term Rate after substantial completion. Equipment Loans will be charged the Short-Term Rate for the life of the loan. All loans are repaid quarterly in arrears every February 1, May 1, August 1, and November 1, and all ILP loans can be prepaid without penalty.
