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Debt financing, especially tax-exempt debt, provides a low-cost source of capital for SFA to fund capital investments to achieve its mission and strategic objectives. As the economic landscape continues to evolve and change, the use of debt will become an increasingly important tool that enables our institution to move its strategy forward. In this environment, appropriate financial leverage plays a key role and is considered a long-term component of the university's balance sheet. Given that the university has limited debt repayment resources, the allocation of and management of debt is necessary to ensure the success of both the university's capital and strategic plans. The guidelines provided in this document are the framework by which decisions will be made regarding the issuance of debt to finance particular capital improvements.


All debt incurred by SFA will be issued or incurred pursuant to resolutions approved by SFA's Board of Regents and in accordance with the general laws of the State of Texas, including Article VII Sections 17 of the Texas Constitution, Chapter 55 of the Texas Education Code, and Chapters 1207 and 1371 of the Texas Government Code. Before any debt can be issued, the university must obtain an opinion from bond counsel that the issue complies with applicable Texas and Federal laws. The university must also receive the necessary approvals from the Texas Bond Review Board and the Texas Attorney General.

Prior to a bond issuance, the Board of Regents designates the capital improvements to be financed with debt, approves the issuance of debt and the type of financing.

The State Energy Conservation Office is also authorized to make loans to the university for special approved energy conservation projects. These financing agreements are not recognized by the university as long-term debt, but are instead recognized as interfund payables. However, outstanding amounts on these loans must be taken into consideration when the university's debt capacity.


SFA's debt capacity is a limited resource. Only projects that relate to the mission of the university, directly or indirectly, will be considered for debt financing. In general, projects that will be approved are broader in scope than college, or unit-based projects. However, certain mission-critical school-based projects can also receive approval. Before beginning the planning for fundraising process for any project that might require debt financing, the approval of the vice president for finance and administration and the university president is required.

Projects financed through Tuition Revenue Bonds will have received approval through the Texas State Legislature. These projects are considered during the legislative review process. Each project must be approved by SFA's Board of Regents, then submitted to the Texas Higher Education, the Texas governor, the Bond Review Board, and the Texas Adjutant General before the bonds are issued. Continued funding for the principal and interest on TRB debt is approved during the biennial budget process. Although principal and interest payments have been consistently funded in the past, these payments are not guaranteed beyond the current biennium and are therefore subject to the university's pledged revenue stream provided by income from tuition and fee charges levied against students specified in the bond covenants.

A project that has a related revenue stream (self-liquidating project) will receive priority consideration. For these projects, the use of debt must be supported by an achievable financial plan that includes servicing the debt, including interest expense, financing related infrastructure and utilities, meeting any new or increased operating costs (including security applications), and providing for appropriate replacement and renovation costs.

Energy conservation measures must show that savings will be adequate to service the debt and all annual monitoring costs. Other projects funded by budgetary savings, gifts, and grants will be considered on a case by case basis. Any projects that will require gift financing, or include a gift-financing component, must be jointly approved by SFA's vice president for university advancement and vice president for finance and administration before approaching any prospective donors about gifts to the project. Because of the ancillary costs of projects, the amount of gifts raised must also include an associated endowment for any projects that are to be 100% gift financed. In all cases, institutional strategy and not donor capacity must drive the decision to build a project.

Maintenance of Credit Rating

Maintaining a high credit rating will permit SFA to continue to issue debt and finance capital projects at favorable interest rates while meeting its strategic objectives. While SFA's decision to issue additional debt will be primarily focused on the strategic importance of the new capital improvement(s) the potential impact of a change in credit rating will also be reviewed. SFA recognizes that external economic, natural or other events may from time to time affect the creditworthiness of its debt. The university is committed to ensuring that actions within its control are prudent. Management will provide the rating agencies with full and timely access to required information.

Methods of Sale

The standard methods of sale are competitive, negotiated and private placement. University management will evaluate each method of sale and determine the best type for each bond issue.

Financing Team Professionals

Selection of financing team professionals will be accomplished based on guidance from university's administration. Based on the type of debt issued, when specialized outside help is needed, the bond counsel and financial advisor(s), will be selected using the RFP (request for proposals) method.

General Revenue Pledge

SFA will utilize general revenue secured debt (available funds pledge) for all financing needs, unless for energy conservation measures or other certain projects where management desires to structure specific revenue pledges independent of general revenue projects. The general revenue pledge provides a strong, flexible security that captures the strengths of the tuition and fees generated by the university as well as auxiliary and student related revenues. Although TRB are typically financed by the state, the university pledged revenue must be sufficient to cover these bonds as well as other revenue bonds.


SFA will consider refinancing of outstanding debt issues when net savings for that refinancing measured on a net present value basis are positive. Since there are limitations on the number of allowable refinancings, it is important to use refinancing opportunities wisely. In evaluating refunding opportunities, the university will consider the value of the call option to be exercised, including the amount of time to the call date and the amount of time from the call date to maturity. Based on these and other factors, the university will determine the minimum savings threshold for any particular refunding transaction. Refundings that do not produce savings may be considered under certain circumstances, including the elimination of certain limitations, covenants, payment obligations or reserve requirements that reduce flexibility.

Types of Instruments

The types of instruments listed below are different methods of financing available to the university. University management determines which instrument is most appropriate when it considers capital expenditures and long-term financing.

General Obligation debt - SFA can issue GO bonds, which are legally secured by a constitutional pledge of the state, and therefore are subject to the state's credit rating. This often makes this type of debt eligible for lower interest rates. However, the debt is subject to certain restrictions. The projects funded with GO debt must be E&G projects (no auxiliary projects) and can be financed at a maximum of 10 years. This debt must be structured that in no year, more than 50% of the university's Higher Education Fund allocation is used for debt service. Normally, these obligations are not considered self-supporting, since no additional revenue is associated with the completed projects.

Revenue Bonds - SFA can issue revenue bonds. In most cases, these issues are tax-exempt debt. There are primarily two types of revenue bonds, Tuition Revenue Bonds and Revenue Bonds funded from sources outside of state appropriations.

Tuition Revenue Bonds are issued related to specific projects that are presented to the state for approval. These projects must be related to the educational purpose of the university. Their use is restricted to "acquire, purchase, construct, improve, renovate, enlarge or equip property, buildings, structures, facilities, roads, or related infrastructure on or for the campus." Prior to initiating a project, it must be approved by the Texas Legislature and the Texas Higher Education Coordinating Board as being eligible for TRB funding.

Revenue Bonds are other bonds issued by the university. These projects can be auxiliary projects (i.e., housing, student center or parking) or E&G projects. The projected debt service payments are typically structured so as to be paid from revenue generated from these projects. Revenue bonds issued for projects that typically do not generate revenue will be paid from the university's other pledged revenues that include tuition and fee.

Tax-Exempt Debt - SFA recognizes the benefits associated with tax- exempt debt, and therefore will manage the tax-exempt portfolio to maximize the use of tax-exempt debt subject to changing conditions and changes in tax law.

Taxable Debt - Taxable debt may be used for those projects that have an intended use or other characteristics that preclude the use of tax-exempt debt. The university will strive to allocate its available resources, including equity capital, among its various capital projects to minimize or eliminate the need to issue taxable debt, thereby minimizing the university's cost of capital.

Long-Term Capital Leases - The university sometimes utilizes this method of debt for projects that are related to a specific asset or expense that can be financed through a third party. This type of arrangement normally does not incur the issuance costs associated with a bond sale.

Commercial Paper - The university recognizes that a commercial paper program can provide low-cost working capital and provide bridge financing for projects. However, as with other debt structures, the level of CP outstanding impacts the university's overall debt capacity.

Variable Rate Debt - Variable rate debt is a desirable component of a debt portfolio as it provides typically lower rates. The use of variable rate debt does expose the debt portfolio to interest rate fluctuations and often comes with liquidity needs. Therefore, the university may include variable interest rate instruments and products when advantageous.

Maturity and Debt Service

The useful life of the capital project financed will be taken into consideration when determining the length of financing. The amortization term should generally be no more than 120% of its average useful life. Call features should be structured to provide the highest degree of flexibility relative to cost. Structure of debt service will take into consideration existing debt and future capital plans.

Disclosures and Compliance

Annually, SFA will review compliance with covenants and requirements under outstanding bond indentures. The university will continue to meet its ongoing disclosure requirements in accordance with SEC rule 15c2-12. The university will submit financial reports, statistical data and any other material events as required under outstanding bond indentures. SFA will comply with arbitrage requirements on invested bond funds and Internal Revenue Service rules related to private use and use of proceeds on tax-exempt debt.

Use of Benchmarks and Debt Ratios

In order to maintain an understanding of the university's standing in comparison to other like institutions, analysis using standard ratios and benchmarks must be made comparing SFA to others in its peer group. This analysis can be used as an ongoing tool in determining trends, weaknesses and target strengths relating to the debt portfolio and the health of the institution. On a regular basis, SFA will review its ratios and compare them to published benchmarks from the rating agencies and others in its peer group. Although other ratios may also be evaluated, the primary financial ratios to be analyzed include the debt coverage ratio and the debt burden ratio.

Indirect Debt

SFA understands that debt issued by affiliated foundations can have an effect on the university's bond rating. University management will take steps to be aware of, and participate in, debt discussions and new borrowings undertaken by those affiliated entities.



Michaelyn Greene
Director of Treasury and Student Business Services

Physical Address:
Austin Building
Suite 204

Mailing Address:
P.O. Box 13053, SFA Station
Nacogdoches, Texas 75962