Chapter 145: Debt and Derivatives

145.010 Policy for Management and Oversight of Debt and Derivatives

kuscheld — Wed, 20 Feb 2013 23:42:56 +0000

145.010 Policy for Management and Oversight of Debt and Derivatives kuscheld Wed, 02/20/2013 - 23:42

Bd. Min. 1-31-13.

Introduction – This policy establishes guidelines for the management and oversight of external debt and derivatives. The authorities, responsibilities and reporting requirements outlined in this section shall be informed by the guidelines contained within the following (collectively, “Debt and Derivative Policies”):
1. CRR 145.015 Debt Management Guidelines
2. CRR 145.020 Derivatives Policy
Overview of Borrowing Programs – The following provides a basic overview of the two primary external borrowing programs approved by the Board of Curators. The detailed applicable provisions of each program, including applicable issue-specific issuance, payment and related logistical matters, are contained within board resolutions approved by the Board of Curators from time to time authorizing issuances of debt under such programs, and the associated offering documents.
1. ŷ��ڱ��Ƶ Facilities Revenue Bonds Program – Provides generally long-term financing for acquisition, construction, renovation or expansion of various ŷ��ڱ��Ƶ facilities. The principal and interest of the bonds are payable from, and secured by a first lien on and pledge of, designated revenues of the ŷ��ڱ��Ƶ’s revenue-producing system facilities, including campus bookstore receipts, housing and dining charges, hospital and patient services, and parking collections, as well as certain assessed fees, such as recreational facility fees, stadium surcharges, and student activity fees, and a portion of tuition and fees attributable to such facilities (collectively, “ŷ��ڱ��Ƶ Facilities Revenues”).
  The ŷ��ڱ��Ƶ must continuously operate and maintain the facilities financed by the bonds and maintain sufficient rates and charges for use of such facilities as will allow the ŷ��ڱ��Ƶ to meet annual debt service requirements. Additionally, ŷ��ڱ��Ƶ Facilities Revenues, in aggregate, must at all times exceed 200% of the annual debt service requirements for the bonds in any given fiscal year.
2. Commercial Paper Program – Provides flexibility in managing the ŷ��ڱ��Ƶ’s overall debt program and may be utilized for various ŷ��ڱ��Ƶ financing needs including, but not limited to: a) capital projects, including the acquisition, construction, renovation or expansion of various ŷ��ڱ��Ƶ facilities, infrastructure or equipment, and b) providing a readily accessible source of funds for various working capital purposes.
  Commercial Paper Notes (“CP Notes”) may be issued in taxable or tax-exempt form under the Commercial Paper program up to an aggregate amount authorized by the Board of Curators. Only taxable CP Notes may be utilized for working capital purposes. The maximum term of any CP Note is 270 days, and no more than $100 million in CP Notes may mature within any seven calendar days.
  
  CP Notes are limited obligations of the ŷ��ڱ��Ƶ payable solely out of and secured by a pledge of the ŷ��ڱ��Ƶ’s unrestricted revenues, which generally include state appropriations for general operations, student fee revenues, and all other operating revenues of the ŷ��ڱ��Ƶ other than ŷ��ڱ��Ƶ Facilities Revenues.
Authorities – The Board of Curators of the ŷ��ڱ��Ƶ of Missouri has the ultimate authority to determine the proper means for the management and oversight of the ŷ��ڱ��Ƶ’s debt and derivatives. Through this policy, the Board delegates certain specific authorities and responsibilities with respect to the management and oversight of debt and derivatives, which it has determined to be appropriate as described herein.
1. The following actions shall require Board of Curators approval after consideration of recommendations from ŷ��ڱ��Ƶ staff:
  1. Approval of debt financing for individual capital projects, including the acquisition, construction, renovation or expansion of ŷ��ڱ��Ƶ facilities, infrastructure or equipment. In addition to specific ŷ��ڱ��Ƶ Facilities Revenues and various other sources of funding, Facilities and Administrative Cost Recovery (“FACR”) may be used as an identified funding source for internal debt service on debt issued to build ŷ��ڱ��Ƶ research and academic buildings, while not technically pledged to secure external debt. The total amount of FACR authorized for this purpose shall not exceed 20% of the annual average total FACR generated by the ŷ��ڱ��Ƶ over the three most recent fiscal years; and, the total amount approved for a campus’s projects shall not exceed 20% of the annual average total FACR generated by the respective campus over the three most recent fiscal years. Exceptions to this policy can be made at the discretion of and by a vote of the Board of Curators.
  2. Issuance of debt, in any amount, under the ŷ��ڱ��Ƶ Facilities Revenue Bond Program.
  3. Determination of the maximum aggregate amount of CP Notes that may be outstanding at any one time under the Commercial Paper Program (“authorized amount”).
  4. Approval of Derivative Transactions as defined in CRR 145.020 “Derivatives Policy.” The authorizing resolution should clearly state the objective to be achieved by the transaction and the execution parameters should be consistent with the objective.
2. The following authority is hereby delegated by the Board to the Vice President for Finance and Administration or the Treasurer:
  1. Within the Commercial Paper Program, issuance of CP Notes within the authorized amount of aggregate principal amount outstanding.
Responsibilities – The Vice President for Finance and Administration or her/his designees are responsible for the following:
1. Implement and monitor Debt and Derivative Policies.
2. Review Debt and Derivative Policies on an annual basis, with policy amendments submitted to the Board of Curators as necessary.
3. Maintain accurate records and monitor compliance with any requirements for debt and derivatives.
4. Establish procedures to monitor the financial exposure and other risks associated with any Derivative Transaction as defined in CRR 145.020 “Derivatives Policy.”
5. Periodic reporting to the Board as outlined in Section E of this policy.
Reporting – At minimum, the following reporting to the Board shall be required:
1. Quarterly: Summary of external debt and derivatives outstanding with appropriate metrics; listing of amount and general purpose of each CP Note currently outstanding (if any) under the Commercial Paper program.
2. Annually: Report of external debt authorized and outstanding by project; updated projections with respect to the ŷ��ڱ��Ƶ’s estimated debt capacity; and, current credit ratings.

145.015 Debt Management Guidelines

kuscheld — Wed, 20 Feb 2013 23:44:37 +0000

145.015 Debt Management Guidelines kuscheld Wed, 02/20/2013 - 23:44

Bd. Min. 1-31-13.

Introduction - These debt management guidelines are designed to provide a framework for implementing the ŷ��ڱ��Ƶ’s debt issuances, to impose discipline on capital financing and operating budget decisions, to manage interest rate risk and to assist in the continued investment in the ŷ��ڱ��Ƶ’s facilities. Further, these guidelines shall help ensure adequate financial strength to service existing and proposed debt, to maintain leverage within an acceptable risk tolerance while investing in strategic capital and other initiatives, and to enhance a strong financial profile to ensure continued access to the capital and money markets. Finally, this guidance will aid management in ensuring that an appropriate mix and type of funding resources are utilized and that the ŷ��ڱ��Ƶ’s debt capacity continues to be used strategically.
Responsibilities and Authorities – See CRR 145.010 “Policy for Management and Oversight of Debt and Derivatives.”
Approach to Debt Issuance - While the ŷ��ڱ��Ƶ attempts to maximize the use of philanthropy, grants, internal funds and state and federal appropriations to fund capital projects, the strategic use of both taxable and tax-exempt debt can provide additional support for mission-critical investments and increase financial flexibility.
The ŷ��ڱ��Ƶ recognizes that debt is a limited resource. Debt should be used prudently within the ŷ��ڱ��Ƶ’s constitutional and statutory authority for capital projects that are consistent with the mission and vision of the ŷ��ڱ��Ƶ. To assure that this criteria is met, an analysis of the ongoing impact of the projects on the ŷ��ڱ��Ƶ’s finances must be performed in connection with any incurrence of debt.

Debt will be managed on a portfolio-wide basis with the goal of achieving the most favorable cost of capital within acceptable risk parameters.

The ŷ��ڱ��Ƶ recognizes that there is a relationship between debt and overall ŷ��ڱ��Ƶ liquidity. The ŷ��ڱ��Ƶ needs appropriate liquidity for its operations and debt and investment obligations. In order to manage this relationship, regular analysis of the on-going impact of debt on the ŷ��ڱ��Ƶ’s liquidity must be performed.

The ŷ��ڱ��Ƶ will manage its exposure to lenders, debtholders and other similar external parties by diversifying its financial service providers in the roles of bond sales, variable rate bond remarketing, commercial paper dealers, swap counterparties, and providers of other banking services or other forms of credit enhancements.
Debt Capacity and Debt Affordability - Debt capacity is a subjective measure, typically associated with balance sheet leverage. The ŷ��ڱ��Ƶ’s risk tolerance and capital needs will inform how much leverage can comfortably be assumed. Debt affordability is in part a subjective measure, in this case associated with income statement leverage as well as ability to cover debt service from operations. Therefore the ŷ��ڱ��Ƶ’s operating performance – either on a ŷ��ڱ��Ƶ, campus or project basis, as appropriate in the specific circumstance - along with projections of new revenue associated with debt-financed projects, will determine the affordability of additional debt.
The following ratios are intended to be guidelines for use in determining the ŷ��ڱ��Ƶ’s tolerance for additional debt and not to be an impediment to achieving the ŷ��ڱ��Ƶ’s strategic objectives.

These ratios are used to measure the amount of outstanding debt compared to the ŷ��ڱ��Ƶ’s balance sheet resources (debt capacity) and the ability to service debt annually from operations (debt affordability). Such ratios shall be:
- Derived from audited financial statements;
- Calculated consistent with industry standards and peer institutions;
- Monitored on an on-going basis (annually and at the time of debt issuance);
- Re-evaluated as the ŷ��ڱ��Ƶ’s capital needs and strategic initiatives evolve; and
- Compared with peer institutions.
1. Expendable Resources to Debt (Debt Capacity)
  Unrestricted Net Assets + Restricted Expendable Net Assets / Outstanding Debt
  This ratio is considered one of the most basic determinants of financial health by measuring coverage of direct debt by expendable financial resources. This ratio typically corresponds strongly with credit rating categories for rated institutions, so it is considered a good measure of debt capacity at a given rating level.
2. Debt to Revenue (Debt Capacity)
  Outstanding Debt / Operating Revenues
  This ratio measures the ŷ��ڱ��Ƶ’s debt as a percent of total revenue and provides an overall measure of income statement leverage.
3. Debt Service to Operations (Debt Affordability)
  Annual Debt Service / Total Operating Expense
  This ratio measures the burden of debt service on the ŷ��ڱ��Ƶ’s budget. This ratio is monitored to maintain the ŷ��ڱ��Ƶ’s long-term operating flexibility to fund existing requirements and new initiatives.
4. Debt Service Coverage (Debt Affordability)
  Operating Surplus (Deficit) + Interest and Depreciation Expense / Annual Debt Service
  Debt service coverage measures the margin by which the ŷ��ڱ��Ƶ can repay its outstanding debt obligations. When assessing the potential incurrence of new debt, the additional revenues expected to be received by the ŷ��ڱ��Ƶ as a result of a debt-financed project may be considered in calculating the debt service coverage ratio if appropriately stress-tested.
Debt Portfolio Risk Management - Risk management is an enterprise-wide endeavour and understanding the ŷ��ڱ��Ƶ’s exposure to various risks requires an integrated view of assets, liabilities and operations. Debt portfolio risks exist within this wider context and must inform and be informed by it.

Risks in the debt portfolio can broadly be categorized as interest rate risks or liquidity risks. The former impacts the budget and its ability to absorb volatility in interest expense. The latter impacts the balance sheet and its ability to absorb unexpected calls on liquidity. The following risks will be assessed at the time of each debt or derivatives transaction and will be routinely monitored and managed on a portfolio-wide basis.

The components of interest rate risk include the following:

The components of liquidity risk include the following:
1. Market Rate Risk: The risk of rising interest rates on variable rate exposure from bank lines, bonds, commercial paper or Derivative Transactions. Although not part of the then-current debt portfolio at a given point in time, the ŷ��ڱ��Ƶ recognizes that debt yet to be issued for future projects also represents interest rate exposure.
2. Tax Risk: The risk that tax-exempt bond rates may unexpectedly increase or fluctuate due to changes in the tax code.
3. Bank Facility Re-pricing Risk: The risk that the pricing for bank lines or letters of credit (if any) used to support variable rate bonds or commercial paper will increase after expiration.
4. Credit Risk: The risk that the ŷ��ڱ��Ƶ’s underlying credit ratings and/or the credit ratings of a bank providing bank lines or letters of credit to support variable rate bonds or commercial paper are downgraded.
5. Basis Risk (swap related): The risk that any swap receipts do not fully offset borrowing costs.
6. Counterparty Performance Risk (swap related): The risk that a swap counterparty fails to perform under a swap agreement.
7. Remarketing Risk: The risk that variable rate demand bonds, put bonds or commercial paper cannot be remarketed and the Remarketing Agent puts the debt back to the ŷ��ڱ��Ƶ or the bank providing a bank line or letter of credit.
8. Roll Risk: The risk that bullet maturities, commercial paper or other balloon payments cannot be refinanced at maturity.
9. Bank Facility Renewal Risk: The risk of acceleration from the failure to renew an existing bank facility or to find a substitute facility.
10. Liquidity Provider Performance Risk: The risk that a liquidity provider fails to perform under an applicable bank line, letter of credit, or other liquidity agreement.
11. Swap Collateralization Risk: The risk that the mark-to-market of a swap declines and triggers a collateral posting requirement.
12. Swap Termination Risk: The risk that an automatic termination event from a counterparty results in a swap termination in which the ŷ��ڱ��Ƶ must pay to settle the swap.
The ŷ��ڱ��Ƶ will quantify its potential exposure to interest rate and liquidity risks under various risk scenarios. The ŷ��ڱ��Ƶ recognizes that risk can change rapidly in response to external and internal factors, and that adequate contingency plans need to be in place to address different environments.

The ŷ��ڱ��Ƶ recognizes that there is a trade-off between pursuing the lowest cost of funds and assuming risk in the debt portfolio. The amount of risk that the ŷ��ڱ��Ƶ will be willing to assume within its debt portfolio will be evaluated in the context of other risk factors affecting the institution, including investment risk, operational risk, and external economic factors.
Structuring Guidelines - The ŷ��ڱ��Ƶ will review all potential funding sources for its projects, with the goal of achieving the lowest overall cost of capital that is consistent with the ŷ��ڱ��Ƶ’s risk profile. In determining the structure for a specific financing, the ŷ��ڱ��Ƶ will take into account a number of factors, including prevailing market conditions and its existing debt portfolio.
1. Fixed / Variable Mix: In general, fixed rate financing is used in order to avoid unexpected increases in interest costs in the future. Variable rate debt may be considered for funding in anticipation of gifts or when prepayment/restructuring flexibility is desired, or when long-term fixed interest rates are considered undesirable for locking in long-term rates, or for diversifying the ŷ��ڱ��Ƶ’s debt portfolio. Since the use of variable rate instruments may require liquidity, the ŷ��ڱ��Ƶ will take such requirements into consideration when using variable rate debt and will manage its liquidity needs considering the entire asset and debt portfolio as well as different variable rate instruments, which may or may not require liquidity support. Exposure to and reliance on external parties, such as remarketing agents, commercial paper dealers and liquidity providers, will be considered on a comprehensive, ŷ��ڱ��Ƶ-wide basis.
2. Tax-Exempt/Taxable Debt: The ŷ��ڱ��Ƶ will evaluate the use of tax-exempt versus taxable debt based on market conditions at the time of issuance, type of facility being financed (as not all projects qualify for tax-exempt financing) and taking into account other strategic considerations, such as restrictions (or lack thereof) on the use of debt proceeds.
3. Refunding Criteria: The ŷ��ڱ��Ƶ will continuously monitor its outstanding debt for refunding and/or restructuring opportunities. For refundings, the ŷ��ڱ��Ƶ will consider transactions that produce appropriate present value savings, taking into account the level of interest rates, the remaining time before the call date and costs of issuance. Additional factors to be considered include negative arbitrage (if any) and the use of derivatives or non-traditional bond structures.
4. Other Financing Sources: Opportunities for alternative and non-traditional transaction structures may be considered, including off-balance sheet financings. The ŷ��ڱ��Ƶ recognizes that these types of transactions can often be more expensive than traditional ŷ��ڱ��Ƶ debt structures; therefore, the benefits of any potential transaction must outweigh any potential costs and risks. Non-traditional structures should only be considered once the benefits have been identified and the likely impact on the ŷ��ڱ��Ƶ’s debt capacity and credit has been determined.
5. Derivative Products: The ŷ��ڱ��Ƶ recognizes that derivative products may enable more opportunistic and flexible management of the debt portfolio. The ŷ��ڱ��Ƶ will consider the utilization of derivative products, subject to the provisions of CRR 145.020 “Derivatives Policy.”
Methods of Debt Issuance – The ŷ��ڱ��Ƶ will select the preferred method of issuance for each debt sale dependent upon the type of transaction, market conditions, and the projects to be financed. The most common types of sale are negotiated, using one or more selected underwriters; competitive; or via private placements. When using a negotiated transaction, the ŷ��ڱ��Ƶ may either select one or more underwriters for an individual transaction or a series of transactions, or establish a pool of qualified underwriters from which the ŷ��ڱ��Ƶ will select one or more specific underwriter(s) for each transaction. In all cases, underwriters shall be selected as part of a competitive process based on a variety of factors, including but not limited to, the execution capabilities of the firm, service provided to the ŷ��ڱ��Ƶ, fees, and other strategic considerations. If utilized, an underwriting pool shall last no longer than 5 years before a new competitive process establishes another pool.
Rating Agency and Investor Relations - The ŷ��ڱ��Ƶ recognizes that an active program of credit rating agency and investor relations is critical for maintaining favorable capital market access. While the ŷ��ڱ��Ƶ recognizes that changes to its credit rating can affect its borrowing costs, decisions related to borrowing and structure will be driven first and foremost by strategic issues, including the ŷ��ڱ��Ƶ’s capital needs and its ability to afford debt, and not governed by issues relating to a specific credit rating.
Compliance - The ŷ��ڱ��Ƶ will comply with all legal and contractual requirements for ongoing continuing disclosure related to its debt portfolio, including disclosure requirements under applicable SEC or MSRB rules and regulations contained in applicable continuing disclosure undertakings. The ŷ��ڱ��Ƶ may employ one or more dissemination agents to assist it in compliance with such requirements.
The ŷ��ڱ��Ƶ will comply with all applicable legal, contractual and other requirements for post-issuance compliance related to tax-exempt or other debt, including any applicable ŷ��ڱ��Ƶ policy and/or procedures adopted from time to time in order to so comply. Matters to be monitored and complied with pursuant thereto may include the investment, use and expenditure of proceeds of such debt; restrictions on the use of projects financed thereby; record retention and maintenance; ongoing compliance monitoring; interaction with bond counsel and/or disclosure counsel; monitoring of tax-exempt bond expenditures; arbitrage rebate monitoring, compliance and filings; and private business use monitoring and compliance.

145.020 Derivatives Policy

kuscheld — Wed, 20 Feb 2013 23:46:26 +0000

145.020 Derivatives Policy kuscheld Wed, 02/20/2013 - 23:46

Bd. Min 1-31-13

Introduction - This policy is designed to provide a framework for the management of risk associated with derivative instruments and hedging activities in connection with debt transactions. This policy is adopted pursuant to and is intended to be compliant with Section 108.170(7)(3) of the Revised Statutes of Missouri, as the same may be amended from time to time.
This policy shall be applicable to agreements providing for payments based upon levels of or changes in interest rates, including without limitation derivative agreements commonly referred to as interest rate swaps, hedges, caps, floors or collars, entered into in connection with bonds, notes or other obligations issued by or on behalf of the ŷ��ڱ��Ƶ, which bonds, notes or other obligations are either presently outstanding or expected to be issued, and bearing interest at fixed or variable rates of interest (individually a “Contract”, “Agreement” or “Derivative Transaction”, and collectively “Contracts”, “Agreements” or “Derivative Transactions”).
Responsibilities and Authorities – See CRR 145.010 “Policy for Management and Oversight of Debt and Derivatives.”
General Guidelines - The following non-exclusive list provides certain guidelines that the ŷ��ڱ��Ƶ will follow in the evaluation and recommendation of Derivative Transactions as defined in this policy:
1. Legality - Any proposed Contract must comply within the legal constraints imposed by state laws, ŷ��ڱ��Ƶ resolutions, and existing covenants, bond resolutions, indentures and other contracts.
2. Permitted Purposes and Financial Strategy - Derivative Transactions may be used to manage the ŷ��ڱ��Ƶ’s risk profile, including but not limited to tax risk, liquidity risk, and interest rate risk. The ŷ��ڱ��Ƶ will evaluate Derivative Transactions on a standalone basis, in the context of the debt portfolio, and in the context of the ŷ��ڱ��Ƶ as a whole (e.g., institutional tax risk and interest rate risk).
3. Mitigation of Risk Factors - The ŷ��ڱ��Ƶ recognizes that certain risks will be assumed if it enters into a Derivative Transaction. In order to mitigate the associated risks, the ŷ��ڱ��Ƶ will follow the guidelines described below:
  1. Counterparty Risk: Counterparty risk is the risk that a counterparty fails to meet its obligations as described in the Contract. The ŷ��ڱ��Ƶ will seek to mitigate this risk by (a)evaluating the credit quality of any counterparty, including, but not limited to, public credit ratings, preferring higher creditworthiness for transactions which may have a significant financial impact, (b) diversifying its counterparty exposure among different financial institutions and (c) including, when appropriate, swap collateralization requirements which protect the ŷ��ڱ��Ƶ.
  2. Termination Risk: Termination risk is the risk that an event of default or credit rating downgrade below a set threshold triggers a termination event. Except for extenuating circumstances, it is the intent of the ŷ��ڱ��Ƶ not to make a termination payment to a counterparty that has failed to meet its contractual obligations. At a minimum, prior to making any termination payment, the ŷ��ڱ��Ƶ will determine whether it is financially advantageous to obtain a replacement counterparty.
  3. Collateralization Risk: Collateralization risk is the risk that the ŷ��ڱ��Ƶ must post collateral to secure a negative mark-to-market (or manage the receipt of collateral from a counterparty). Collateral thresholds will be selected to avoid significant portfolio burden arising from posting of collateral.
  4. Interest Rate Risk: Many Derivative Transactions involve the assumption or removal of interest rate risk. Portfolio impact must be evaluated as well as institutional asset positions (or other investments) which may be impacted by changes in short or long interest rate risks.
  5. Basis Risk: Basis risk is the risk that the index chosen as the basis for floating rate payments in the Derivative Transaction does not match the floating rate of the underlying liability. The ŷ��ڱ��Ƶ will mitigate this risk by requiring that any index chosen as part of a Derivative Transaction must be a recognized market index, including but not limited to Securities Industry and Financial Markets Association (“SIFMA”) or London Interbank Offering Rate (“LIBOR”). The ŷ��ڱ��Ƶ will not enter into a Derivative Transaction without considering the potential incremental cost and risk to the ŷ��ڱ��Ƶ of basis risk.
  6. Tax Risk: Tax risk is the risk that tax-exempt bond rates may unexpectedly increase or fluctuate due to changes in the tax code. Tax risk is present in all tax-exempt debt issuances. When entering into Derivative Transactions associated with tax-exempt bonds, tax risk involves tax-exempt bond rates consequently diverging from the specified swap index (a form of basis risk), resulting in a reduction in the derivative’s effectiveness as a hedge or as a risk management financial product. The ŷ��ڱ��Ƶ will mitigate this risk by managing the total tax risk that the ŷ��ڱ��Ƶ assumes in its overall debt portfolio.
  7. Bankruptcy Risk: Bankruptcy risk is the risk that the ŷ��ڱ��Ƶ may fail to recover any amount due, potentially including collateral that has been posted, due to bankruptcy proceedings of a counterparty. The ŷ��ڱ��Ƶ will mitigate this risk by: (a) evaluating the credit quality of any counterparty, including, but not limited to, public credit ratings, preferring higher creditworthiness for transactions which may have a significant financial impact, (b) diversifying its counterparty exposure among different financial institutions and (c) including reasonable swap collateralization requirements.
4. As part of its efforts to mitigate risk, the ŷ��ڱ��Ƶ will also require the counterparty to disclose in writing the potential costs and risks associated with any Derivative Transaction.
  In addition, in its consideration of whether or not to enter into a Derivative Transaction, and in the actual entrance into such a Derivative Transaction if so determined, the ŷ��ڱ��Ƶ shall consider recommended practices with respect to the use of debt-related derivative products published by the Government Finance Officers Association.
Market Disclosure - The Treasurer will establish procedures to provide timely disclosure of material information related to executed Derivative Transactions to credit rating agencies and investors. Audited financial statements will include disclosure of any Derivative Transactions consistent with accounting practice. Any offering documents used in connection with new debt financings will include disclosure of any material information related to Derivative Transactions expected or anticipated at the time of issuance of the obligations.
Exclusions - Nothing in this policy shall be applied or interpreted to diminish or alter the special or general power the ŷ��ڱ��Ƶ may otherwise have under any other provisions of law to use derivative instruments and engage in hedging activities other than Derivative Transactions covered by this Policy as defined in Section A.

145.030 Non-Debt Derivatives Policy

kuscheld — Thu, 16 May 2013 14:27:27 +0000

145.030 Non-Debt Derivatives Policy kuscheld Thu, 05/16/2013 - 14:27

Board Min. 4-12-13.

Introduction - This policy is designed to provide a framework for the management of risk associated with non-debt derivative instruments and similar hedging activities utilized by the ŷ��ڱ��Ƶ and its component units in connection with:
1. the purchase of fuel, electricity, natural gas, animal feed, livestock, agricultural products or other commodities (“commodities”) used in the ordinary course of the ŷ��ڱ��Ƶ’s lawful operations; and/or,
2. transactions in commodities for educational or research purposes or programs and/or service activities of the ŷ��ڱ��Ƶ provided in the ordinary course of its lawful operations.
This policy shall be applicable to option contracts, hedges, forward purchase agreements and similar derivative agreements (individually a “Contract”, “Agreement” or “Derivative Transaction”, and collectively “Contracts”, “Agreements” or “Derivative Transactions”). This policy is intended to be compliant with Section 108.170(7)(3) of the Revised Statutes of Missouri, as amended from time to time, to the extent, if any, that such section is applicable to the ŷ��ڱ��Ƶ.
Authorities - The Board of Curators of the ŷ��ڱ��Ƶ of Missouri has the ultimate authority to determine the proper means for the management and oversight of the ŷ��ڱ��Ƶ’s non-debt derivatives. Through this policy, the Board delegates certain specific authorities and responsibilities with respect to the management and oversight of non-debt derivatives, which it has determined to be appropriate as described herein.
Subject to the Guidelines contained in Section D of this policy, the authority to approve the usage of Derivative Transactions as defined in this policy is hereby delegated by the Board to the Vice President for Finance and Administration or her/his designee.
Responsibilities - The Vice President for Finance and Administration or her/his designees are responsible for the following:
1. Implement and monitor the Non-Debt Derivative Policy.
2. Review the Non-Debt Derivative Policy on an annual basis, with policy amendments submitted to the Board of Curators as necessary.
3. Maintain accurate records and monitor compliance with any requirements for non-debt derivatives.
4. Establish procedures to monitor the financial exposure and other risks associated with Derivative Transactions subject to this policy.
Guidelines - The following non-exclusive list provides certain guidelines that the ŷ��ڱ��Ƶ will follow in the evaluation and approval of Derivative Transactions as defined in this policy:
1. Legality - Any proposed Contract must comply within the legal constraints imposed by state laws, ŷ��ڱ��Ƶ resolutions, and existing covenants, board resolutions, indentures and other contracts.
2. Permitted Purposes and Corresponding Limitations
  1. Derivative Transactions may be used to manage the cost to the ŷ��ڱ��Ƶ and its component units of purchasing commodities used in the ordinary course of the ŷ��ڱ��Ƶ’s operations. Options, futures contracts and similar Agreements entered into pursuant hereto shall be limited in the financial risk to the ŷ��ڱ��Ƶ to the amount paid or invested by the ŷ��ڱ��Ƶ.
    The maximum aggregate notional amount (i.e., amount at risk) of any outstanding Agreements entered into pursuant to this purpose shall not exceed $500,000 at any point in time, without Board approval.
  2. Derivative Transactions may also be used as an educational tool in connection with ŷ��ڱ��Ƶ course offerings, research and/or ŷ��ڱ��Ƶ Extension programs. Such Transactions shall be utilized for the purpose of instructing students and program participants in the use of such Transactions, and the management and minimization of risk.
    The maximum aggregate notional amount (i.e., amount at risk) of Agreements entered into pursuant to this authority shall not exceed: (i) as to Agreements which the ŷ��ڱ��Ƶ has established a funded reserve account related thereto funded from participant fees or contributions, the amount of such reserves, or (ii) as to Agreements without a funded reserve as set forth in clause (i), the aggregate amount of any outstanding Agreements entered into pursuant to this purpose shall not exceed $100,000 at any point in time, without Board approval.
3. Mitigation of Risk Factors - The ŷ��ڱ��Ƶ recognizes that certain risks will be assumed if it enters into a Derivative Transaction. Potential risks could include counterparty risk, termination risk, collateralization risk, basis risk and bankruptcy risk. In its consideration of whether or not to enter into a Derivative Transaction, and in the actual entrance into such a Derivative Transaction if so determined, the ŷ��ڱ��Ƶ shall consider recommended practices with respect to the use of derivative products similar to the relevant recommended practices published by the Government Finance Officers Association, if any.
Exclusions - Nothing in this policy shall be applied or interpreted to diminish or alter the special or general power the ŷ��ڱ��Ƶ may otherwise have under any other provisions of law to use derivative instruments and engage in hedging activities other than Derivative Transactions covered by this Policy as defined in Section A. Furthermore, this policy shall not be interpreted to govern or limit transactions and agreements governed by the ŷ��ڱ��Ƶ’s Debt and Derivatives policies and/or Investment policies or, in the case of transactions not derivative in nature between the ŷ��ڱ��Ƶ and supplier or purchaser of commodities, the ŷ��ڱ��Ƶ’s general regulations applicable to the procurement or sale of goods and services.