Note 9 – Bonds, Capital Leases, and Notes Payable
As of June 30, 2018 and 2017, the categories of long-term obligations are summarized in Table 9.1.
Table 9.1. Bonds, Capital Leases, and Notes Payable (in thousands)
|Type||Interest Rates||Final Maturity||2018||2017|
|Enterprise system revenue bonds (including premium|
|of $140,206 in 2018 and $132,044 in 2017)||0.76-6.26%||6/1/47||$||1,695,916||1,594,249|
|CU Medicine fixed-rate bonds||2.8%||11/1/24||7,481||8,657|
|Colorado Educational & Culture Facilities Authority|
| Student Housing (CUPCO) (including discount of|
$633 in 2018 and $678 in 2017)
|Total revenue bonds||1,755,804||1,655,668|
|Total Bonds, Capital Leases, and Notes Payable||$||$1,778,648||1,680,196|
Table 9.2 presents changes in bonds and capital leases for the years ended June 30, 2018 and 2017.
Table 9.2. Changes in Bonds, Capital Leases, and Notes Payable (in thousands)
|Plus unamortized premiums||132,044||56,715||48,553||140,206||15,946|
|Less unamortized discounts||(678)||-||(45)||(633)||(45)|
|Net revenue bonds||1,655,668||528,105||427,969||1,755,804||82,792|
|Total Bonds, Capital Leases, and Notes Payable||$||1,680,196||529,120||430,668||1,778,648||85,353|
|Plus unamortized premiums||138,021||10,065||16,042||132,044||15,149|
|Less unamortized discounts||-||(701)||(23)||(678)||(46)|
|Net revenue bonds||1,675,644||130,029||150,005||1,655,668||78,414|
|Total Bonds, Capital Leases, and Notes Payable - Univeristy||$||1,691,046||141,732||152,582||1,680,196||80,746|
A general description of each revenue bond issue, original issuance amount, and the amount outstanding as of June 30, 2018 and 2017 is detailed in Table 9.3.
Table 9.3. Revenue Bonds Detail (in thousands)
|Issuance Description||Original Issuance Amount||Outstanding Balance |
|Enterprise system revenue bonds:|
|Series 2007A -|
|Used to refund all of the revenue bond Refunding Series 1999A and Certificates of Participation Series 2003A and 2003B and a portion of revenue bond Refunding Series 1995A, Refunding and Improvement Series 2001B, Series 2002A, and 2002B||$||184,180||27,725||27,725|
|Series 2009A -|
|Used to fund acquisition and capital improvements at CU Boulder, UCCS and CU Denver||165,635||5,235||10,025|
|Series 2009B-1 -|
|Used to fund capital improvements at CU Boulder and CU Anschutz||76,725||-||6,900|
|Series 2009B-2 -|
|Used to fund capital improvements at CU Boulder and CU Anschutz||138,130||138,130||138,130|
|Series 2009C -|
|Used to refund Enterprise System Refund Series 1997, Enterprise System Revenue Refund Bonds Series 2001A for years 2012 through 2026, and Enterprise System Revenue Bonds Series 2002A for years 2014 through 2018||24,510||2,545||7,030|
|Series 2010A -|
|Used to fund acquisition and capital improvements at CU Anschutz||35,510||26,430||27,765|
|Series 2010B -|
|Used to refund Enterprise System Revenue Bonds Series 2002A and Enterprise System Revenue Bonds Series 2003A||56,905||20,790||26,345|
|Series 2010C -|
|Used to fund capital improvements at CU Anschutz||4,375||2,775||3,015|
|Series 2011A -|
|Used to fund capital improvements at CU Boulder and UCCS||203,425||35,060||40,085|
|Series 2011B -|
|Used to partially refund Enterprise System Revenue Bonds Series 2002B, 2003A, 2004, and 2005A||52,600||39,485||47,965|
|Series 2012A-1 -|
|Used to partially refund Enterprise System Revenue Bonds Series 2003A, 2004, 2005A, 2005B, 2006A, and 2007B||121,850||119,125||119,200|
|Series 2012A-2 -|
|Used to partially refund Enterprise System Revenue Bonds Series 2004, 2005A, and 2005B||53,000||43,015||43,785|
|Series 2012A-3 -|
|Used to partially refund Enterprise System Revenue Bonds Series 2005A, 2005B, 2006A, and 2007B||47,165||34,015||37,570|
|Series 2012B -|
|Used to fund capital improvements at CU Boulder, CU Denver and UCCS||95,705||17,940||60,690|
|Series 2013A -|
|Used to fund capital improvements at CU Boulder, CU Anschutz and UCCS||142,460||13,515||136,190|
|Series 2013B -|
|Used to fund capital improvements at CU Anschutz||11,245||10,540||10,780|
|Series 2014A -|
|Used to fund capital improvements at CU Boulder||203,485||38,670||198,330|
|Series 2014B-1 -|
|Used to partially refund Enterprise System Revenue Bonds Series 2005B, 2006B, 2007A and 2009||100,440||97,790||98,105|
|Series 2015A -|
|Used to partially refund Enterprise System Revenue Bonds Series 2006A, 2007B, and 2009||102,450||95,190||97,545|
|Series 2015B -|
|Used to partially refund Enterprise System Revenue Bonds Series 2005A||3,925||2,910||3,020|
|Series 2015C -|
|Used to partially refund Enterprise System Revenue Bonds Series 2007A||71,325||66,445||67,740|
|Series 2016A -|
|Used to fund capital improvements at the CU Denver and UCCS||31,430||30,885||31,310|
|Series 2016B-1 -|
|Used to partially refund Enterprise System Revenue Bonds Series 2011A||156,810||155,245||156,025|
|Series 2017A-1 -|
|Used to partially refund Enterprise System Revenue Bonds Series 2007A and 2012B||66,930||61,505||66,930|
|Series 2017A-2 -|
|Used to partially refund Enterprise System Revenue Bonds Series 2012B, 2013A and 2014A and to establish escrow accounts for the cross-over refunding of Series 2009B, 2010A and 2010C||471,390||470,745||-|
|Total enterprise system revenue bonds - outstanding principal||2,621,605||1,555,710||1,462,205|
|Series 2014 - CU Medicine Fixed Rate Bonds|
|Used to fund capital improvements at CU Medicine||11,695||7,481||8,657|
|Series 2008-Colorado Educational & Culture Facilities Authority Student Housing|
|Used to fund capital improvements||54,055||53,040||53,440|
|Total Other Long Term Obligations||65,750||60,521||62,097|
|Total Outstanding Revenue Bond Principal||1,616,231||1,524,302|
|Total Revenue Bonds||$1,755,804||$1,655,668|
The University’s revenue bonds are payable semiannually, have serial and term maturities, and contain optional redemption provisions. The optional redemption provisions allow the University to redeem, at various dates, portions of the outstanding revenue bonds at prices varying from 100 to 101 percent of the principal amount of the revenue bonds redeemed.
The Enterprise System Revenue Bonds are secured by a pledge of all net revenues of auxiliary services, student fees, other self-funded services, research services, and certain other operating and nonoperating revenues, in addition to 100 percent of the University’s tuition, 100 percent of the University’s capital student fees, and 100 percent of the University’s indirect cost recoveries. All University revenue bonds are special limited obligations of the Regents and are payable solely from the pledged revenues (or the net income of the facilities as defined in the bond resolution). The revenue bonds are not secured by any encumbrance, mortgage, or other pledge of property, except pledged revenues, and do not constitute general obligations of the Regents.
The University’s bonds are payable through June 1, 2047. During the years ended June 30, 2018 and 2017, the total principal and interest paid on the University’s bonds net of Federal subsidy on the Build America Bonds, excluding refundings, was $133,110,000 and $127,708,000, respectively, which is 10.5 percent and 10.8 percent of the total net pledged revenues of , respectively. Net pledged revenues are 38 percent and 39 percent of the total specific revenue streams, respectively.
On December 12, 2017, the University issued $471,390,000 of Tax-Exempt University Enterprise Refunding Revenue Bonds, Series 2017A-2. The proceeds were used to partially advance refund $40,905,000 par value of the Series 2012B bonds, $120,350,000 par value of the Series 2013A bonds, and $154,250,000 par value of the Series 2014A, to cover certain costs related to the issuance, and to establish escrow accounts for the crossover refunding of Series 2009B, Series 2010A, and Series 2010C. The refunding of Series 2012B resulted in an economic gain of $3,782,000 and accounting gain of $1,289,000, which is deferred and amortized over the life of the new bonds. The debt service cash flow decreased by $5,375,000. The refunding of Series 2013A resulted in an economic gain of $9,059,000 and accounting loss of $11,285,000, which is deferred and amortized over the life of the new bonds. The debt service cash flow decreased by $12,951,000. The refunding of Series 2014A resulted in an economic gain of $10,458,000 and accounting loss of $3,772,000, which is deferred and amortized over the life of the new bonds. The debt service cash flow decreased by $15,545,000. Series 2017A-2 has an interest rate ranging from 3.0 percent to 5.0 percent, and the bonds mature through June 1, 2046.
The University’s revenue bonds contain provisions to establish and maintain reasonable fees, rates, and other charges to ensure gross revenues are sufficient for debt service coverage. The University is also required to comply with various other covenants while the bonds are outstanding. These covenants, among other things, restrict the disposition of certain assets, require the Regents to maintain adequate insurance, and require the Regents to continue to operate the underlying programs. Management believes the University has met all debt service coverage ratios and has complied with all bond covenants.
In December 2002, CU Medicine entered into a loan agreement with the Fitzsimons Redevelopment Authority to issue variable-rate bonds, Series 2002, in the amount of $20,500,000. Proceeds from the sale of these bonds were used to fund the development, construction, and equipping of CU Medicine’s administrative office building. In October 2014, CU Medicine refinanced its variable-rate debt with a fixed-rate bank-direct purchase obligation. The borrowing, funded by US Bank, included a $3,500,000 reduction in principal to a net amount outstanding at the time of the refinance of $11,695,000. The obligation is amortizable over 10 years and carries a fixed rate of 2.3 percent. As a result of the Tax Cuts and Jobs Act, signed into law in December 2017, US Bank increased the interest rate on CU Medicine’s borrowing to 2.8 percent. The US Bank financing is subject to the same financial covenants as those included in the original variable-rate obligation, the most significant of which are the maintenance of 60 days’ cash on hand (defined as unrestricted cash plus readily marketable securities) and a debt service coverage ratio of 1.25. CU Medicine management believes it is in compliance with its debt service requirements and financial covenants.
In August 2008, the Colorado Educational and Cultural Facilities Authority (the Authority) issued $54,055,000 of Series 2008 Student Housing Revenue Refunding Bonds (the Series 2008 Bonds). The Authority then loaned the proceeds of the bonds to CVA to refund the 2005 Bonds ($50,365,000), fund a portion of a debt service reserve fund, and pay certain costs of issuance. The Series 2008 Bonds are special, limited obligations of the Authority and are payable solely out of the amounts received by the Authority from CVA pursuant to the terms and provisions of the indenture, the loan agreement, and the lease vacancy agreement. The Series 2008 Bonds are 30 year serial bonds maturing on June 1, 2038, with fixed interest rates ranging from 4.25 percent to 5.5 percent, and contain certain provisions for early redemption. Interest is payable semi-annually on June 1 and December 1. The bonds are secured by the property owned by CVA as well as CVA’s accounts and rents. See Note 1.
Future minimum payments for revenue bonds are detailed in Table 9.4.
Table 9.4. Revenue Bonds Future Minimum Payments (in thousands)
|Years Ending June 30||Principal||Interest||Total|
|2024 - 2028||422,654||210,697||633,351|
|2029 - 2033||381,260||127,826||509,086|
|2034 - 2038||281,440||59,380||340,820|
|2039 - 2043||122,330||17,772||140,102|
|2044 - 2048||22,910||2,006||24,916|
EXTINGUISHMENT OF DEBT
Previous revenue bond issues considered to be extinguished through in-substance defeasance under GAAP, are not included in the accompanying financial statements. The amount of debt in this category, covered by assets placed in trust to be used solely for future payments, amounted to approximately $614,125,000 and $298,620,000 as of June 30, 2018 and 2017, respectively. During the year ended June 30, 2018, debt in the amount of $315,505,000 was defeased and there were no escrow agent payments. During the year ended June 30, 2017, debt in the amount of $28,910,000 was defeased and escrow agent payments were $110,765,000.
The University’s capital leases are primarily for equipment. The University also has a capital lease with a related party. During the year ended June 30, 2009, CU Denver entered into a $10,272,000 site lease agreement with AHEC associated with the build-out of educational space for CU Denver. As of June 30, 2018 and 2017, the University paid base rent to AHEC of approximately $836,000 and $836,000, respectively, annually for each year. Amortization expense is included in depreciation expense.
As of June 30, 2018 and 2017, the University had an outstanding liability for all its capital leases approximating $11,824,000 and $13,313,000, respectively, with underlying gross capitalized asset cost approximating $24,942,000 and $24,969,000, respectively, with accumulated amortization of $12,638,000 and $12,041,000 respectively, resulting in underlying net capitalized assets of $12,304,000 and $12,928,000, respectively.
Future minimum payments for all the University’s capital lease obligations are detailed in Table 9.5.
Table 9.5. Capital Leases (in thousands)
|Years Ending June 30||Principal||Interest||Total|
|2024 – 2028||4,727||670||5,397|
18th Avenue has a 20-year mortgage on the property at 1800 Grant Street. The original amount borrowed was $12,450,000 at an interest rate of 4.15 percent with monthly principal and interest payments of $67,000. There is a balloon payment of $3,678,000 due on June 1, 2033.
Future minimum payments for the University’s note payable are detailed in Table 9.6.
Table 9.6. Notes Payable Future Minimum Payments (in thousands)
|Years Ending June 30||Principal||Interest||Total|
|2024 – 2028||2,817||1,189||4,006|
|2029 – 2033||4,247||164||4,411|
On April 6, 2018 the Regents authorized a commercial paper program for approved capital construction projects with a maximum outstanding amount of $200 million. Each commercial paper note has a fixed maturity date of between 1 and 270 days from issuance and is either taken out at maturity by another commercial paper issuance, retired by permanent financing authorized by the Regents for that purpose, or retired by the University. On June 5, 2018, the University issued the first tranche of Commercial Paper in the amount of $40,000,000 with a maturity of September 6, 2018. The initial issuance of commercial paper is being used to fund the construction of Williams Village East Housing and the Aerospace Engineering Building at the CU Boulder. The initial rate was 1.30 percent. It is expected that future issuance of commercial paper will be used to fund the balance of these two CU Boulder capital construction projects before permanent financing is issued in the summer of 2019. Table 9.7 presents changes in commercial paper for the year ended June 30, 2018.
Table 9.7. Commercial Paper (in thousands)
|Beginning of year||$||-|
|End of year||$||40,000|
STATE OF COLORADO CERTIFICATES OF PARTICIPATION
On October 23, 2008, the State issued State of Colorado Higher Education Capital Construction Lease Purchase Financing Program Certificates of Participation, Series 2008, with a par value of $230,845,000, at a net premium of $181,000. The certificates have interest rates ranging from 3.0 to 5.5 percent and mature in November 2027. Annual lease payments are made by the State and are subject to annual appropriations by the Legislature. As a result, this liability is recognized by the State and not included in the University’s financial statements.
The certificates are secured by the buildings or equipment acquired with the lease proceeds and any unexpended lease proceeds. The proceeds were used to fund various capital projects for the benefit of certain State-supported institutions of higher education in Colorado, including UCCS and CU Boulder. The underlying capitalized assets are contributed to the University from the State. As of June 30, 2018, the University had underlying gross capitalized assets at UCCS costing approximately $17,735,000 with accumulated amortization of $7,020,000 resulting in an underlying net capitalized asset of $10,715,000. As of June 30, 2018, the University had underlying gross capitalized assets at CU Boulder costing approximately $796,000, with accumulated amortization of $178,000 resulting in an underlying net capitalized asset of $618,000. As of June 30, 2018, the University had underlying gross capitalized assets at CU Anschutz costing approximately $188,801,000, with accumulated amortization of $50,972,000 resulting in an underlying net capitalized asset of $137,829,000.
© Office of University Controller 2018