Years Ended September 30, 2017 and 2016
Note 7 – Long-term Debt
Standard & Poor’s Ratings Services rates the University’s outstanding general revenue bonds at AA. The outlook on all ratings is stable. Long-term debt activity for the years ended September 30, 2017 and 2016 is summarized as follows:
Type/Supported by | Balance 10/1/2016 | New Debt | Principal Repayment | Reclass | Balance 9/30/2017 |
|---|---|---|---|---|---|
| Notes payable | |||||
Crimson Tide Foundation airplane | $2,786,325 | $- | $562,452 | $ - | $2,223,873 |
Rental income | 737,468 | - | 130,824 | - | 606,644 |
Bryce/Partlow Property | 44,530,400 | - | 5,566,300 | - | 38,964,100 |
General fee | 543,100 | - | 271,550 | - | 271,550 |
| Bonds | |||||
Student housing revenue | 194,126,796 | 17,495,202 | 20,212,487 | - | 191,409,511 |
Fraternities and Sororities | 26,883,160 | 4,909,254 | 11,763,790 | - | 20,028,624 |
Intercollegiate athletics | 203,543,170 | 41,246,753 | 19,271,885 | - | 225,518,038 |
Auxiliaries | 40,384,118 | 33,114,723 | 9,411,516 | - | 64,087,325 |
General fee | 402,817,756 | 102,549,068 | 17,915,322 | - | 487,451,502 |
| $916,352,293 | $199,315,000 | $85,106,126 | $ - | $1,030,561,167 | |
Plus net unamortized bond premium/discount | 34,669,044 | 43,081,064 | |||
Less current portion | (24,936,126) | (32,336,590) | |||
| $926,085,211 | $1,041,305,641 | ||||
Type/Supported by | Balance 10/1/2015 | New Debt | Principal Repayment | Reclass | Balance 9/30/2016 |
| Notes payable | |||||
Crimson Tide Foundation airplane | $ - | $2,925,000 | $138,675 | $ - | $2,786,325 |
Student housing revenue | 2,315,823 | - | 2,315,823 | - | - |
Rental income | 860,887 | - | 123,419 | - | 737,468 |
Bryce/Partlow Property | 50,096,700 | - | 5,566,300 | - | 44,530,400 |
General fee | 814,650 | - | 271,550 | - | 543,100 |
| Bonds | |||||
Student housing revenue | 195,262,964 | - | 1,142,270 | 6,102 | 194,126,796 |
Fraternities and Sororities | 33,771,372 | - | 6,750,303 | (137,909) | 26,883,160 |
Intercollegiate athletics | 207,556,008 | - | 4,033,432 | 20,594 | 203,543,170 |
Auxiliaries | 42,316,958 | - | 2,067,816 | 134,976 | 40,384,118 |
General fee | 406,742,700 | - | 3,901,181 | (23,763) | 402,817,756 |
| $939,738,062 | $2,925,000 | $26,310,769 | $ - | $916,352,293 | |
Plus net unamortized bond premium/discount | 36,556,199 | 34,669,044 | |||
Less current portion | (24,085,947) | (24,936,126) | |||
| $952,208,314 | $926,085,211 |
Debt obligations generally bear interest at fixed rates ranging from 0% to 6.3% and mature at various dates through fiscal year 2047. Maturities and interest on notes, leases and bonds payable, using rates in effect at September 30, 2017, for the next five years and in subsequent five-year periods are as follows:
| | Notes Principal | Bonds Principal | Total Principal | Notes Interest | Bonds Interest | Total Interest | Total Debt Service |
|---|---|---|---|---|---|---|---|
2018 | $6,551,590 | $25,785,000 | $32,336,590 | $79,941 | $42,048,505 | $42,128,446 | $74,465,036 |
2019 | 6,301,257 | 26,380,000 | 32,681,257 | 58,723 | 42,296,945 | 42,355,668 | 75,036,925 |
2020 | 6,323,264 | 30,050,000 | 36,373,264 | 36,717 | 41,319,329 | 41,356,046 | 77,729,310 |
2021 | 6,191,156 | 31,890,000 | 38,081,156 | 14,172 | 40,002,808 | 40,016,980 | 78,098,136 |
2022 | 5,566,300 | 33,735,000 | 39,301,300 | - | 38,566,018 | 38,566,018 | 77,867,318 |
2023-2027 | 11,132,600 | 193,860,000 | 204,992,600 | - | 166,784,688 | 166,784,688 | 371,777,288 |
2028-2032 | - | 236,935,000 | 236,935,000 | - | 119,396,846 | 119,396,846 | 356,331,846 |
2033-2037 | - | 216,375,000 | 216,375,000 | - | 67,357,787 | 67,357,787 | 283,732,787 |
2038-2042 | - | 143,750,000 | 143,750,000 | - | 24,842,236 | 24,842,236 | 168,592,236 |
2043-2047 | - | 49,735,000 | 49,735,000 | - | 4,638,300 | 4,638,300 | 54,373,300 |
| $42,066,167 | $988,495,000 | $1,030,561,167 | $189,553 | $587,253,462 | $587,443,015 | $1,618,004,182 |
Pledged revenues for the years ended September 30, 2017 and 2016 as defined by outstanding bond covenants are as follows:
| | 2017 | 2016 |
|---|---|---|
Tuition and fees | $719,840,321 | $692,223,046 |
Sales and services of educational activities | 12,776,616 | 12,619,542 |
Auxiliary sales and services | 208,799,681 | 203,145,877 |
Investment income | 55,813,223 | 50,945,777 |
Other operating revenue | 59,247,356 | 55,784,465 |
Total pledged revenues | $1,056,477,197 | $1,014,718,707 |
The University defeased certain indebtedness during fiscal year 2017 with the 2017 bond issuance. For this defeasence, funds were deposited in escrow trust accounts sufficient to provide for the subsequent payment of principal and interest on the defeased indebtedness. Under the trust agreements, funds deposited in the trust accounts were invested in obligations of the U.S. Government. The University estimates that the amounts on deposit will be sufficient to satisfy the debt service requirements on the defeased indebtedness and that the defeasance will result in lower overall debt service payments to the University. Should the amounts on deposit not be sufficient to retire the defeased indebtedness upon maturity, the University would be responsible to satisfy the shortfall. The University remains legally obligated for the repayment of the defeased indebtedness. Neither the assets of the trust accounts nor the defeased indebtedness are included in the accompanying statements of net position. The principal outstanding on the 2017 defeased indebtedness at September 30, 2017 is approximately $34.4 million.
The undiscounted cash flows required to service principal and interest under the old bonds as of September 30, 2017, would have been $91.9 million compared to undiscounted cash flow requirements of $91.5 million under the new bonds. The economic gain to the University of the bond refinancing in fiscal year 2017 was calculated to be approximately $7.9 million using an effective interest rate of 3.20% applied to the old and new bond cash flow requirements.
The University’s general revenue bonds are subject to certain covenants. These covenants, among other things, require the Board to adopt an annual budget; to establish and maintain reasonable fees, rates, and other charges to ensure pledged revenues are sufficient for debt service coverage; to maintain books and records pertaining to the pledged revenues; to furnish annual audits and other periodic reports; and to comply with certain restrictions as to additional indebtedness. Based on pledged revenues received in fiscal year 2017 of $1.1 billion, the projected maximum annual debt service requirement of $78.1 million in 2021 is covered approximately 13.5 times by pledged revenues. The University is in compliance with all financial covenants as of September 30, 2017.
In November 2014, the University finalized a purchase agreement with the ADMH for approximately 118 acres of land and certain other defined appurtenances of the property, known as the Partlow Property. This $32 million purchase is payable over a ten-year period.
In February 2015, the University finalized an additional purchase agreement with the ADMH for approximately 244 acres of land and certain other defined appurtenances of the property, referred to as the Partlow Property II. This $23.7 million purchase is also payable over a ten-year period.
The following is a detailed schedule of long-term debt as of September 30, 2017:
Description | Date Issued | Final Maturity | Interest Rate-% | Original Debt | Outstanding Debt |
|---|---|---|---|---|---|
Bonds Payable | |||||
General Fee Revenue Bond Series 2008A | 8/1/2008 | 7/1/2034 | 3.0-5.0 | $45,425,000 | $1,410,000 |
General Fee Revenue Bond Series 2009A | 10/30/2009 | 7/1/2039 | 5.14-6.28 | 135,425,000 | 135,425,000 |
General Fee Revenue Bond Series 2009B | 10/30/2009 | 7/1/2021 | 1.25-5.14 | 48,060,000 | 18,335,000 |
General Fee Revenue Bond Series 2010A | 7/1/2010 | 7/1/2040 | 2.0-5.875 | 16,495,000 | 13,915,000 |
General Fee Revenue Bond Series 2010B | 11/18/2010 | 7/1/2040 | 5.7-5.85 | 18,000,000 | 18,000,000 |
General Fee Revenue Bond Series 2010C | 11/18/2010 | 7/1/2038 | 3.8-6.1 | 100,420,000 | 100,420,000 |
General Fee Revenue Bond Series 2010D | 11/18/2010 | 7/1/2019 | 1.0-4.0 | 31,040,000 | 5,835,000 |
General Fee Revenue Bond Series 2012A | 10/16/2012 | 7/1/2042 | 3.0-5.0 | 265,655,000 | 260,440,000 |
General Fee Revenue Bond Series 2012B | 10/16/2012 | 7/1/2019 | 1.4-3.0 | 20,290,000 | 6,155,000 |
General Fee Revenue Bond Series 2014A | 8/28/2014 | 7/1/2021 | 5.0 | 25,780,000 | 17,140,000 |
General Fee Revenue Bond Series 2014B | 8/28/2014 | 7/1/2044 | 3.0-5.0 | 212,105,000 | 212,105,000 |
General Fee Revenue Bond Series 2017A | 8/30/2017 | 7/1/2024 | 4.0-5.0 | 15,855,000 | 15,855,000 |
General Fee Revenue Bond Series 2017B | 8/30/2017 | 7/1/2047 | 3.0-5.0 | 158,400,000 | 158,400,000 |
General Fee Revenue Bond Series 2017C | 8/30/2017 | 7/1/2023 | 1.32-2.32 | 25,060,000 | 25,060,000 |
Total bonds payable | 1,118,010,000 | 988,495,000 | |||
Notes payable: | |||||
Geist LLC Promissory Note | 1/24/2007 | 2/1/2021 | 6.0 | 1,800,000 | 606,644 |
Key Government Finance | 6/15/2014 | 7/15/2018 | 0.0 | 1,357,750 | 271,550 |
Department of Mental Health (Partlow I) | 11/14/2014 | 11/14/2023 | 0.0 | 32,000,000 | 22,400,000 |
Department of Mental Health (Partlow II) | 2/27/2015 | 2/27/2024 | 0.0 | 23,663,000 | 16,564,100 |
PNC Aviation Finance (CTF airplane) | 2/17/2016 | 3/1/2021 | 2.22 | 2,925,000 | 2,223,873 |
Total notes payable | 61,745,750 | 42,066,167 | |||
Total bonds and notes payable | $1,179,755,750 | $1,030,561,167 |