UNIVERSITY OF SOUTH FLORIDA

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UNIVERSITY OF SOUTH FLORIDA

• Debt Management
• and
• Debt Capacity Assessment
• Presentation to USF Finance Council
• August 5, 2005
• Fell L. Stubbs
• USF Associate Treasurer

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USF Debt Management Initiatives

• Assess USFs ability to carry the 2005 COPs and
  the impact of proposed new debt on our debt
  capacity.
• Assess our claim to an Aa3 Moodys Rating.
• Identify the drivers of our recent improvement in
  debt capacity despite increases in debt.
• Draw operating conclusions for strategic
  planning, Unit budget evaluation and approval,
  and day-to-day operations to improve our credit
  ratings.
• Develop periodic financial reports to track
  performance.
• Update comparisons with 6/30/05 figures.

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Credit Rating Agencies

• There are three principal credit rating agencies
• Moodys Investors Service
• Standard Poors Ratings Services
• Fitch, Inc.
• These agencies rate the credit risk of both
  taxable and tax-exempt university debt.
• Ratings play a critical role in an issuers
  ability to access funding from the securities
  markets.
• Credit ratings provide a key assessment of the
  financial merits of new capital projects and the
  strength of management.

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Critical Factors Determining a Rating

• Market Position strengths of core business
  (education, research, patient care, etc.)
• Relationship with State reliance on
  appropriations, level and consistency of state
  funding (public university ratings are related to
  their sponsoring states ratings)
• Balance Sheet Strength total resources, total
  wealth (successful fundraising and endowment
  management)
• Operating Performance diversity and strength of
  revenues, expense management, operating
  surpluses, debt service coverage
• Debt Position / Capital Funding Profile current
  debt and additional debt capacity, capital needs
  and identified sources of funding, legal
  structure and pledge of revenues / assets.
• Strategy and Management strength of board and
  management, including ability to successfully
  implement strategies, capital and operational
  plans.

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Moodys Outlook for Public Universities

• (Moodys revised Outlook is slightly higher)
• Strengths
• Sound student marketing position.
• Improved operating performance.
• Financial resource growth.
• Challenges
• Constrained state appropriations.
• Competition for research funding.
• Capital needs increasing leverage.
• Shrinking tuition pricing advantage to private
  schools.

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USF Credit Ratings

• USFs ratings are based on Projects funded by
  auxiliary revenue
• USF has the following ratings
• AA- Standard Poors
• A1 Moodys
• A Fitch
• USFs ratings are Underlying Ratings on its
• 16 million 2004A Parking Facility Revenue
  Bonds.
• The Parking Project also carries AAA Insured
  ratings.
• USF has not issued a General Obligation bond,
  thus the University does not have a direct credit
  rating.
• USFs DSOs also issue project debt with credit
  ratings the 2005 Series Housing COPs carry an
  Underlying A rating from SP.

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USF Operating Strengths

• FINANCIAL PERFORMANCE
• Strong increase in net assets of 69 million in
  2004 and 70 million in 2003.
• Strong support from the AA rated State of
  Florida, with appropriations of 306 million in
  2005, second largest in the Florida System.
• Diverse revenue sources, with 38 from
  appropriations, 32 from grants, 15 from
  tuition and 15 from other sources.
• Adequate liquidity, with unrestricted net assets
  (including Foundation) of 192 million, equal to
  4x USF debt, but only 88 of total USF and
  Component debt.
• Foundation assets of 321 million with
  unrestricted net assets of 21 million.
• Low pro forma University debt levels of 48
  million pro forma component debt of 169
  million.

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USF Debt Capacity

• Key Debt Capacity Measures
• LIQUIDITY
• Expendable Financial Resources / Direct Debt
• Total Financial Resources / Direct Debt
• LEVERAGE
• Direct Debt / Student
• CASH FLOW
• Actual Debt Service Coverage

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USF Debt Capacity

• Compare USF 2004 Debt Capacity Measures to Rating
  Medians
• Aa3 USF A1
• Median 2004 Median
• Debt / Student 11,582 7,485 7,341
• Exp. Fin. Res. / Debt 1.30x 2.26x 1.00x
• Tot. Fin. Res. / Debt 2.13x 3.15x 1.97x
• Debt Service Coverage 3.33x 6.17x 3.28x
• Moodys Public College and University Medians
  2004-2005, Aa3 and A1
• Auditor Generals 2004 USF Financial Audit

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USF Debt Capacity

• Pro Forma Impact of 2005 Series COPs (net
  addition of 30 mil) and of Proposed 2006
  Marshall Center and HSC Clinics (another 94 mil)
  on USF Debt Capacity
• Pro Forma¹
• Aa3 USF USF USF
  A1
• Median 2004 72 Mil 94 Mil
  Median
• Debt / Student 11,582 7,485 10,359
  14,085 7,341
• Exp. Fin. Res. / Debt 1.30x 2.26x 1.63x
  1.20x 1.00x
• Tot. Fin. Res. / Debt 2.13x 3.15x
  2.28x 1.68x 1.97x
• Debt Service Coverage 3.33x 6.17x
  5.80x 4.39x 3.28x
• ¹ Pro Forma calculations using 2004 figures.
• NOTE Debt service coverage at a Project level is
  critically important.

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Performance Expectations for Series 2005 COPs
from Rating Agencies

• USF Housing will continue to generate
• operating surpluses.
• St. Petersburg Parking Housing projects will
  be completed on time and on budget.
• 3. Strong growth trends at USF will continue.

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Recap of 2005 COPs Transaction

• 143 million Transaction / USF Financing Corp.
  Issue
• Refinance 113 mil of existing housing debt
• Fund 29 mil for new St. Petersburg parking
  housing projects
• Deal Structure
• 50 mil 18 yr fixed rate at 4.02
• 93 mil 30 yr weekly ARS / 80 mil fixed via
  3.22 swap
• AAA insured (Ambac) (underlying A rating)
• Costs
• Lowest pricing via bids from 16 underwriters,
  insurers, trustees
• Expense caps for advisors, counsel, etc.
• Benefits
• 10.8 mil total NPV. Each aspect with positive
  contribution refinance existing debt, refinance
  existing swaps, enhance St. Petersburg project
• 10.1 mil NPV compared to alternative Div. of
  Bond Finance transaction
• USF Finance Team
• 7 largest underwriters of higher education bonds
  in the US
• Largest financial advisor in the US
• Top bond and disclosure counsel

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USF Steps to Mitigate Downward Pressure on Credit
Trends

• Manage continued enrollment growth
• Maintain strong operational and financial
  performance.
• Take advantage of lower current market interest
  rates by refinancing relatively higher-cost
  debt.
• Improve asset / liability matching by extending
  maturities and hedging variable rate debt.
• Toughen internal credit standards on Projects to
  gain access to USF System debt.

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Debt Capacity Assessment and Financial Management
Guidance from Credit RatingsCredit Rating
Measures
Key Debt Capacity Ratios
Key Credit Rating Measures
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