Submitted by: Richard J. Nork, Vice President for Finance and Business Operations

Bank Line of Credit

Recommendation

The Administration recommends that the Board of Governors adopt the attached resolution authorizing the President or his designee to establish a bank line of credit in the amount of $25,000,000.

Background and Project Description

The purpose of this line of credit is to provide the University with enhanced liquidity to meet short term cash needs .

During the course of the fiscal year , cash pool balances can fluctuate considerably based upon the University's operating cycle , as well as the timing of the receipt of State appropriations , University debt service payments and other large obligations . (Please refer to the attached Exhibit I showing daily cash balances for the past 2 years).

In December 2011 , the Board of Governors approved changes to the University's investment policy which enabled the Administration to restructure the cash pool in order to improve investment returns . As a result, FY 2012 investment income is over $6 million higher than FY 2011 , however , the portion of the cash pool held in demand deposits is significantly lower. While the rest of the portfolio remains highly liquid, it is prudent to hold those investments for longer term and to supplement short term cash needs with a line of credit.

The cost to establish the credit line is approximately $50 ,000 and the ongoing cost to maintain the unused credit facility will be up to approximately $40,000 annually (15 basis points). Any amounts borrowed will be subject to interest costs based on an interest rate index, typically the London Interbank offered rate (LIBOR) , plus a spread to be negotiated with potential lenders as part of a competitive bidding process. Costs will be netted against investment income.

Budget and Finance Committee Agenda October 3, 2012

WAYNE STATE UNIVERSITY

$450

$440

$430

$420

$410

$400 - FY 2011 - FY 2012

$390

$380

$370

$360

"' $350 C

~ ~ $340

$330

$320

$310 Core, Opportunistic and WSU longterm

$300 ----------------------------------$290

$280 Core and Opportunistic Portfolio

$270

$260

$250 10/1 11/1 12/1 1/1 2/1 3/1 4/1 5/1 6/1 7/1 8/1 9/1

RESOLUTION OF THE BOARD OF GOVERNORS OF WAYNE STATE UNIVERSITY AUTHORIZING THE BORROWING OF FUNDS TO MEET TEMPORARY CASH FLOW

NEEDS , AND PROVIDING FOR OTHER MATTERS RELATING THERETO

WHEREAS , the Board of Governors of Wayne State University (the "Board") is a constitutional body corporate established pursuant to Article VIII, Section 5 of the Michigan Constitution of 1963, as amended , with general supervision of Wayne State University (the "University ") and the control and direction of all expenditures from the University ' s funds; and

WHEREAS, it is necessary for the Board to authorize the borrowing of funds to provide financing of temporary cash flow needs of the University ; and

WHEREAS , the Vice President for Finance and Business Operations , Treasurer and Chief Financial Officer will solicit proposals from banking and financial institutions for the terms under which the bank or financial institution , singly or in combination with another bank or financial institution , would provide a $25,000,000 Line of Credit Facility (the "Facility") to be used to finance temporary cash flow needs of the University ; and

WHEREAS , it is necessary to authorize the President and the Vice President for Finance and Business Operations , Treasurer and Chief Financial Officer (the "Authorized Officers"), or either of them singly, to negotiate , execute and deliver one or more loan or loan and pledge agreements , or similar agreements (collectively , the "Agreement ") with one or more banks or financial institutions , and related documentation , including a Note or Notes (collectively , the "Note") evidencing the obligations of the Board to repay the principal of and interest on the amounts drawn under the Agreement and Note and related costs.

NOW , THEREFORE , BE IT RESOLVED BY THE BOARD OF GOVERNORS OF WAYNE STATE UNIVERSITY , AS FOLLOWS :

1. The Board hereby approves the borrowings through the Facility for the purposes set forth above. The maximum aggregate principal amount of the borrowing outstanding at any time under the Facility shall not exceed $25,000,000, and all draws shall be payable , together with interest thereon within three years of their date of advance. Interest rates shall not exceed a designated period LIBOR plus 150 basis points , or the published Prime Rate plus 50 basis points, or the periodically established Base or Prime Rate of the lead provider of the Facility plus 50 basis points (subject in each case to adjustments for changes in tax rates, capital requirements or other laws or regulations , withdrawal of any credit ratings of the Board or a default by the Board), but in no event in excess of the lesser of 18% per annum or the maximum rate permitted by law. Principal and interest on draws under the Facility shall be evidenced by the Note and shall be payable solely from General Revenues (as defined in the Trust Agreements pursuant to which the Board ' s outstanding General Revenue Bonds have been issued), and may, if determined appropriate by an Authorized Officer, be secured by a parity first lien or subordinate lien on General Revenues .

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2. The Board further authorizes the Authorized Officers, or either of them, to select the bank or banks or financial institution or institutions to provide the Facility , to negotiate, execute and deliver the Agreement and Note with one or more banks or financial institutions providing the Facility , and if appropriate , any participant banks or financial institutions , subject to the terms, conditions and limitations contained in this resolution . The Authorized Officers, and each of them, are further authorized to negotiate , execute and deliver any and all related documents , instruments and certificates , and to make any determinations , elections and filings necessary to accomplish the purposes of this resolution .

3. No recourse shall be had for the payment of the principal amount of or interest on the Note , or for any payments due under the Agreement , or any claim based thereon against the State of Michigan or the Board or the University, or any officer or agent thereof , as individuals , either directly or indirectly, nor shall the Note and interest thereon or other obligations of the Board be payable from or become a lien on or be secured by any property , real, personal or mixed, of the State of Michigan or the Board, other than the General Revenues and the moneys from time to time on deposit in funds or accounts, if any, established by the Agreement. The pledge of General Revenues and moneys described above shall be valid and binding from the date of the issuance and delivery of the Note , and all moneys or properties subject thereto which are thereafter received shall immediately be subject to the lien of the pledge without physical delivery or further act. The lien of said pledge shall be valid and binding against all parties ( other than the holders of any other bonds, notes or obligations secured by a parity first lien on General Revenues) having a claim in tort, contract or otherwise against the Board, irrespective of whether such parties have notice of the lien.

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