The University of Texas System Office of Finance

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The University of Texas SystemOffice of Finance
Revenue Debt Capacity Presentation to the Finance
and Planning Committee August 6, 2003
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I. The Revenue Financing System
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Revenue Financing System
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Revenue Financing System (continued)
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II. U.T. System Credit Strengths and Risks
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Strength 1 Geographic
Diversity
U. T. Dallas
U. T. Arlington
U. T. Permian Basin
U. T. Tyler
U. T. El Paso
U. T. Austin
U. T. San Antonio
U. T. Pan American
U. T. Brownsville
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Strength 2 Increasing Student Demand
Source Texas Higher Education Coordinating
Board.
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Strength 3 Premier Competitive Position
Source Texas Higher Education Coordinating
Board.
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Strength 4 Diversified Revenue Stream
Contribution to Revenues (FY 2002 Annual
Financial Report)



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Strength 5 Less Reliance on State Funding
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Reliance on State Funding VariesComparison of
Revenue Sources (FY 2002)
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Strength 6 Strong Private Sector Support
Millions
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Strength 7 Extraordinary Financial Resource
Base
Millions
Represents U.T. Systems two-thirds share of
the PUF.
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Risk 1 Large and Growing Capital
ProgramU.T. System Capital Improvement Program
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Risk 2 Growing Debt Usage Revenue Financing
System Debt Service by Type
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Risk 3 Declining Debt Service Coverage
GASB 34/35 Accounting Change
Per discussions with Moodys, these ratios
include amounts associated with the AUF and H.B.
1839 excellence funds that appear as transfers in
the Statement of Revenues, Expenses and Change in
Net Assets.
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Risk 4 Impact of TRBs on Debt Service Coverage
U.T. System Debt Service Coverage
GASB 34/35 Accounting Change
Per discussions with Moodys, these ratios
include amounts associated with the AUF and H.B.
1839 excellence funds that appear as transfers in
the Statement of Revenues, Expenses and Change in
Net Assets.
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Tuition Revenue Bonds Authorized Since 1993
Millions
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III. FY 2004-2009 Capital Improvement Program
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FY 2004-2009 Capital Improvement Program Summary
166 Projects totaling 4.59 Billion
( Millions)
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Capital Improvement Program Statistics
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Breakdown of New RFS Debt in CIP

• Summary of New RFS Projects ( in
  Millions)
• M.D. Anderson Projects 398.0 61.7
• Student Housing 101.4 15.7
• Parking Garages 84.3 13.1
• Other 61.4 9.5
• Total New RFS Added 645.1

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IV. Credit Statistics
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Debt Service Coverage - FY 2002
Debt Service Coverage Operating Surplus
Depreciation Interest Expense Total Principal
and Interest Payments
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Expendable Financial Resources to Debt - FY 2002
Expendable Financial Resources to Debt
Unrestricted Net AssetsRestricted Expendable Net
Assets
Direct Debt
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Actual Debt Service to Operations - FY 2002
Actual Debt Service to Operations Annual Debt
Service Total Operating Expenses
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V. Revenue Debt Capacity Issues
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Summary of Debt Capacity Issues

• The RFS Master Resolution requires the Board to
  make a finding that component institutions can
  meet their debt service obligations. It does not
  require they meet these obligations at AAA
  standards.
• Large capital needs and low interest rates
  continue to make RFS debt an attractive option
  for component institutions.
• The large CIP, growing debt levels, and generally
  weakening credit ratios are all negative credit
  trends.
• A greater utilization of TRBs increases future
  appropriation risk and dilutes the Systems
  credit ratios.
• Many components have little or no revenue debt
  capacity. Components with no revenue debt
  capacity can still use revenue debt to fund TRB
  projects, and may still be able to use revenue
  debt to fund strong revenue-generating projects
  (on a case-by-case basis).

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Steps Taken to Improve Credit Profile

• During FY 2002, the minimum acceptable debt
  service coverage ratio was increased. May
  consider additional increases during FY 2004.
• In FY 2003, executed advance refunding
  transaction to create debt service savings and
  shorten the TRB appropriation risk horizon.
  Planning additional advance refunding transaction
  to take advantage of low interest rates and
  achieve additional debt service savings.
• Lengthened the maturity of a portion of the RFS
  debt portfolio to more closely match the term of
  the debt to the useful life of the financed
  assets creating better asset-liability matching.
• Working with UTIMCO, exploring various options
  regarding the investment of operating funds to
  maximize the investment return.

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Conclusions

• The U.T. System is a strong credit and has
  additional revenue debt capacity however, based
  on current trends and financial projections, the
  U.T. System is steadily using up its Revenue
  Financing System (RFS) debt capacity at the AAA
  credit level.
• The credit deterioration has been caused
  primarily by greater utilization of RFS debt,
  including TRBs, rather than a general decline in
  operating performance.
• Although the planned level of RFS and TRB debt
  issuance associated with the FY 2004 - FY 2009
  CIP could put a stress on the System's credit
  ratings, the Office of Finance is comfortable
  that each institution has the ability to repay
  its RFS debt from its own resources.