Financial Services

University Policy on Capital Debt Management

Policy No.
UP09/12
Function
Financial Management
Authoring Organisational Unit
Treasury and Investments
Date Approved
01/06/2006 Revised 21/12/2017
Next Review Date
01/12/2019
Approving Body
Senate

The University of Western Australia

University Policy on: Debt Management Policy

Purpose of the policy and summary of issues it addresses:

The University has established the Debt Management Policy as a governance framework for any external borrowings. This policy was originally approved by Senate in 2006 and sets out requirements in relation to purpose, financial restrictions and ratios, source and structure of borrowings and internal monitoring, reporting and accountability requirements.

Definitions:

Borrowing Costs: Interest and other costs incurred in relation to the borrowing of funds.

Debt Service Costs: Borrowing costs and scheduled regular principal repayments but excludes temporary debt reduction.

Debt Service Coverage: Debt covenant which measures the University's capacity to meet debt servicing obligations from operating cash flows.

Gearing Ratio: Debt covenant which measures the University's debt to net assets.

Self-Supported Capital Assets: Land, building or infrastructure assets which generate additional net income through an income stream or budgetary savings that is sufficient to support debt service costs as a standalone project.

University Supported Capital Assets: Land, building or infrastructure assets acquired for institutional purposes which assist in fulfilling the University's vision and strategic objectives.

Policy statement:

1. Application

1.1. The debt management policy covers the operation of the University's debt portfolio, primary established in relation to the University to the University's capital asset management plan.

1.2. The policy applies to all University borrowing from external sources including traditional bank facilities and access to capital markets. The policy does not apply to debts arising from ordinary operations.

2. Legal Review

2.1. All forms of external finance are to be established by a written contract.

2.2. The terms of all contracts must be reviewed by Risk and Legal

3. Debt source

3.1. Debt shall be obtained by way of:

3.1.1. Western Australian Treasury Corporation or other State based borrowings;

3.1.2. Bank or other lending institutions borrowings; or

3.1.3. Direct capital market issues

3.2. Wherever possible, the University shall borrow funds on an unsecured or a floating charge basis. The University may seek to borrow on an unsecured basis subject to the Treasurers Guarantee as permitted under The University of Western Australia Act 1911(WA).

4. Debt Structure

4.1. The University's external financing operations shall be managed on a portfolio basis to ensure a coordinated approach and to optimise portfolio effectiveness.

4.2. The debt structure shall be determined based on the dual objectives of lowering the average cost of capital and providing budget and cash flow certainty within an acceptable level of risk.

4.3. The debt portfolio shall be diversified across a range of debt maturities and interest rate exposures, so as to provide characteristics of both fixed and variable rate debt over varying time horizons.

4.4. A mix of fixed and floating rate debt is desirable to minimise both cost of capital and interest rate risk. The mix shall be determined in light of the borrowing environment and purpose. The University is required to structure the debt portfolio within the minimum and maximum ranges outlined in Attachment A.

4.5. The appropriateness of the mix of debt shall be formally assessed at least once each year, or in light of any fundamental changes in interest rates and the borrowing environment.

5. Debt Covenants and Restrictions

5.1. The University shall access only a limited amount of borrowing to ensure the University maintains a strong financial position and credit rating.

5.2. Borrowed funds shall be used for the purposes set out in the borrowing documents and other than any overdraft or liquidity facilities cannot be used for maintenance or operating costs.

5.3. Attachment B sets out the debt covenants against which the University's borrowing limit will be evaluated and under which the debt portfolio is required to operate.

5.4. A debt repayment reserve can be established under the policy. The amount of funds set aside and held in the reserve (if any) shall be determined on the recommendation of the Chief Financial Officer based on a risk assessment of debt maturities and the funding buffer between the minimum level of unrestricted funds and the actual and forecast level of unrestricted funds.

6. Risk Management

6.1. The debt portfolio shall be managed to ensure the University has sufficient access to liquidity and established facilities to meet its financial obligations as they fall due.

6.2. The debt portfolio shall be managed to ensure an acceptable level of risk, ensure compliance with debt covenants and borrowing facilities contractual undertakings and provide long term certainty.

6.3. Risks shall be minimised by ensuring outstanding debt has a diversified maturity profile and an appropriate interest rate exposure mix. The term of the borrowing may be varied to take into consideration the interest rate environment.

6.4. Interest rate derivatives are permitted to hedge risks and assist with the effective management of the debt portfolio. Use of derivatives is to be in accordance with independent advice and separately approved by the Vice-Chancellor.

7. Authorisation and Governance

7.1. Senate is responsible for approving the University debt policy.

7.2. The Strategic Resources Committee is responsible for recommending the debt policy to Senate.

7.3. The Chief Financial Officer is responsible for the management and day to day operation of the debt policy.

7.4. Unless otherwise provided by this policy, the Chief Financial Officer shall have specific delegated authority in relation to the day to day management of the debt portfolio, as approved by the Vice Chancellor.

8. Performance Reporting

8.1. The University debt portfolio will be monitored on a monthly, quarterly and annual basis, with an annual assessment of rolling one, three and five-year results. Reports shall be provide quarterly and annually to the Strategic Resources Committee and annually to the Audit and Risk Committee.

8.2. Non-compliance with this policy and lender's requirements shall be reported to the Chief Financial Officer. Where the non-compliance is material it shall be reported to the Vice-Chancellor and Chair of the Strategic Resources Committee; and to the next scheduled meeting of the Strategic Resources Committee.

9. External Advisors

9.1. Professional advisors may be appointed from time to time to assist with the University's debt raising activities and the review of the debt management policy.

10. Review of Policy

10.1. This Policy shall be formally reviewed every two years or more frequently if circumstances warrant.

11. Effective Date of Policy

11.1. The debt management policy comes into effect immediately upon being approved by Senate and replaces any previous policies.

Related forms: (Link)

TRIM File No:

F15064

Contact position:

Senior Accountant, Treasury, Investments & Financial Compliance, Finance