UNIVERSITY OF CINCINNATI JUNE 30, 2 008
Major capital projects in design
- Medical Sciences Building Rehabilitation, Phases 2-5 – $204 million project that will complete the renovation of
the Medical Sciences Building; a 945,000 gross sq. ft. facility. Phases 2-5 include renovation of building systems
to achieve compliance with current codes along with a space utilization design that will permit flexibility for
reconfiguration of the facility over the life of the building and will extend the building’s life another 25 – 30 years.
Debt
Total debt representing bonds, notes and certificates of participation, was increased by $17 million in 2008 as a result
of issuing $275 million of debt and by decreasing outstanding debt by $258 million. The $275 million of debt was
issued to fund various capital projects and to refund existing debt. The $258 million decrease in debt was due to
refunding and the retirement of principal. Debt was increased by $105 million in 2007, due to the issuance of new
debt of $268 million and decreasing outstanding debt by $163 million. That new debt was also used to fund capital
projects and to refund $78 million of existing debt. As a result of the 2008 refunding, the University will realize a net
economic gain of $2 million over 14 years.
The University does not have any auction rate bonds outstanding, as a result of refunding issuances during 2008.
The University did not have any failed auctions in 2008. Likewise, there has not been a significant failed remarketing
on the weekly reset variable rate bonds.
Subsequent to June 30, 2008, the University has issued $36 million in Series 2008E BANS to refinance Series 2007B
insured variable rate bonds. In addition, the University has amended the Standby Bond Purchase Agreement (SBPA)
associated with the Series 2004B insured variable rate bonds to eliminate the potential of a termination of the SBPA
without notice to the bondholders. As a result of this amendment, interest rates have significantly improved. In an
effort to further improve interest rates, the University is planning to issue Series 2008F variable rate bonds, which will
be secured by a letter of credit that will refinance the Series 2004B insured variable rate bonds secured by the SBPA.
The University will continue to monitor the variable rate market and take appropriate action as necessary.
The University executed its first interest rate swap agreement in the spring of 2008 in connection with the issuance of
Series 2008B variable rate bonds and a qualified hedge with respect to bonds which are expected to be issued on or
before May 1, 2009. The intent of these derivative transactions is to protect the University against the potential of
rising interest rates. GASB Statement Number 53, Accounting for Financial Reporting for Derivative Instruments was
issued June 2008. This Statement addresses the recognition, measurement and disclosure of information regarding
derivative instruments entered into by state and local governments. The requirements of this Statement are effective
for financial statements for periods beginning after June 15, 2009. The University will implement the Statement in
fiscal year 2010 as required.
Ratings of University bonds by Standard & Poors (S&P) were maintained at A+ in 2007 and in 2008. S&P also
maintained its rating on the University’s certificates of participation at A in 2007 and 2008. The note rating of SP-1+
was maintained through 2007 and 2008 however S&P‘s outlook remained negative during 2008. Moody’s revised the
ratings for bonds from A1 in 2007 to A2 in 2008. The rating for certificates of participation was revised from A2 in
2007 to A3 in 2008. The MIG1 rating for notes was maintained through 2007 and 2008. Moody’s revised the outlook
for the University from negative to stable during 2008. Series 2008E BANS, issued subsequent to June 30, 2008,
maintained the same note ratings and outlooks as those received during 2008.
The University continues to invest in its expansion of research and educational facilities beyond the level provided by
state capital appropriations through the issuance of additional debt. The extensive investment in these facilities was
necessary to attract high quality students, faculty, and research funding in an increasingly competitive environment.
The University’s debt financing activity in the future will focus on Academic Health Center projects, renovations of
existing facilities and building systems, and the overall management of the debt portfolio.