In order to receive Design/Development Approval from the Board of Regents, the Office of Finance must provide a "Finding of Fact" that supports the conclusion that member institutions on whose behalf debt is issued possess the financial capacity to satisfy their direct obligations.
Although non-quantitative aspects of the institution are also taken into consideration, debt capacity is largely determined by an institution's ability to meet at least two of three minimum standards:
- Balance Sheet Leverage:
- [Academic Institutions]: Spendable Cash and Investments to Total Debt Ratio of at least 0.75x
- [Healthcare Institutions]: Unrestricted Cash & Investments to Total Debt Ratio of at least 1.5x
- Debt Service to Operations Ratio not greater than 5.0%
- UT Scorecard Rating not greater than 6.0
These debt capacity ratios are generally defined as:
- [For Academic Institutions] Spendable Cash and Investments to Total Debt Ratio: This ratio examines the ability of an institution to repay bondholders from wealth that can be accessed over time or for a specific purpose.
Cash and Investments less Permanently Restricted Net Position
- [For Healthcare Institutions] Unrestricted Cash and Investments to Total Debt Ratio:
Unrestricted Cash and Investments (including unrestricted ITF and LTF)
- Debt Service to Operations Ratio: This ratio examines the institution’s dependence on borrowed funds as a source of financing and the cost of borrowing relative to overall expenses.
Debt Service Transfers Operating Expense (excluding Scholarships) + Interest Expense
- UT Scorecard Rating: The Rating has four broad factors important to rating agencies in their assessment of credit:
- Market Profile
- Operating Performance
- Wealth and Liquidity, and
There are nine sub-factor calculations under these four broad factors and each sub-factor is assigned a weight and a value. After calculating each sub-factor, the results are mapped to a rating category. Then, the sub-factor ratings are converted to alpha numeric values, which are multiplied by the assigned weights and summed to produce an aggregate weighted score. That aggregate score is then mapped to the appropriate rating.
The Analysis of Financial Condition ("AFC") is produced annually by the Controller's Office and contains further detail on each ratio's definition and calculations for each institution.
For projects that are self-supporting (i.e., revenue-generating, such as parking, student housing, etc.) a 1.3x debt service coverage is required on the project itself, and the two-out-of-three test described above does not apply.