UNIVERSITY OF CINCINNATI JUNE 30, 2008
Based on the swap agreements, the University pays to the swap counterparty interest calculated at a fixed
rate. In return, the swap counterparty pays the University interest based on a specified index. Only the net
difference in interest payments is actually exchanged with the counterparty. The University continues to pay
interest to the bondholders at the variable rate as provided for by the bonds. The interest paid to the
bondholders will be offset by the swap counterparty’s payment to the University; thus during the term of the
swap agreement, the University is in effect paying a synthetic fixed interest rate on this debt.
Basis Risk: The swaps expose the University to basis risk should the interest rate received on the swaps be
less than the interest rate paid on the bonds. This mismatch will effectively result in a higher synthetic fixed
rate and the expected savings may not be realized.
Termination Risk: The University or counterparty may terminate the swap if either party fails to perform
under the terms of the agreement. Termination provisions may result in the University paying or receiving a
termination payment, depending on the value of the swap at that point in time.
Fair Value: As of June 30, 2008, the combined fair value of the two swap agreements was a positive
$693,000, indicating the amount that the Counterparty would be required to pay the University to terminate
the swap agreements. The fair value was estimated using the zero coupon method. This method calculates
the future net settlement payments required by the swap agreement, assuming that the forward rates implied
by the yield curve as of June 30, 2008 correctly anticipate future spot interest rates. These payments are
then discounted using the spot rates implied by the yield curve for hypothetical zero-coupon bonds due on
the date of each future net settlement of the swap agreement. The fair values of the swap agreements were
developed by an independent third party with no vested interest in the swap transaction.Credit Risk: As of June 30, 2008, the University was exposed to credit risk of the counterparty on the
termination payments because the swaps had positive fair values. At June 30, 2008, the counterparty was
rated AA- by Standard & Poor’s and Aaa by Moody’s Investors Service.
The Debt Service Commitments presented in section 7-D of this footnote are calculated using the fixed rate
of 3.508% for Series 2008B.
Bond Anticipation Notes – During the year ended June 30, 2008, the University issued the following Bond
Anticipation Notes: Series 2007E for $40,468,000, issued primarily to refinance existing bond anticipation
notes (Series 2006D and 2006E); Series 2007F for $32,810,083, issued to refinance existing bond
anticipation notes (Series 2007D); and Series 2008A for $30,000,000, issued to refinance existing bond
anticipation notes (a portion of Series 2007C and Series 2007E). Series 2007F bond anticipation notes were
retired on December 21, 2007. Series 2008A notes are currently outstanding and bear interest at a rate of
3.25%.Loans Payable for Equipment – The University did not enter into any new loans for equipment purchases
during the year ended June 30, 2008. All of the outstanding loans for equipment bear interest rates between
3.58% and 4.69%.Capital Leases for Stetson and Turner – The University has two capital lease agreements in connection
with the financing of two buildings (One Stetson Square and the Turner Center) which are owned by King
Highland Community Urban Redevelopment Corporation and will be occupied, all or in part, by the
University. The One Stetson Square lease totaling $32,745,000 bears interest at rates ranging from 4.25%
to 5.97% and matures in 2033. The Turner Center lease totaling $9,955,000 bears interest at rates ranging
from 4.00% to 5.25% and matures in 2033.(^)
B) Refundings
General Receipts Bonds—Series 2008B general receipt bonds were issued April 9, 2008 in the amount of
$35,915,000, for the purpose of current refunding $34,855,000 of the following June 1, 2008 and callable
June 1, 2009 fixed rate bond maturities: Series T $1,210,000, Series X $240,000, Series Y $390,000, Series
Z $1,325,000, Series AA $985,000, Series AC $245,000, Series AD $885,000, Series AG $430,000, Series
AH $805,000, Series AL $335,000, Series AL1 $230,000, Series AM $265,000, Series AN $155,000, Series
AO $455,000, Series AQ $260,000, Series AT $30,000, Series AU $100,000, Series AV $35,000, Series AZ
$75,000, Series 2001A $6,715,000, Series 2002A $230,000, Series 2002D $325,000, Series 2002F