F 2 STANDING COMMITTEES. Finance and Asset Management Committee. Finance and Capital Report INFORMATION

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1 STANDING COMMITTEES F 2 Finance and Asset Management Committee Finance and Capital Report INFORMATION This item is being presented for information only. BACKGROUND This item is a standing monthly agenda item. Attachments 1. Monthly Debt Report December Active Capital Projects Summary as of November 14, Business Equity Scorecard as of November 14, 2018 F 2/212-18

2 Monthly Debt Report December 2018 Long-Term Credit Rating: Aaa/AA+ Internal Lending Rate: 4.50% Weighted Average Cost of Debt: 3.52% Recent Events The mid-term elections had minimal impact on interest rates. Post-elections, market volatility declined and long-term interest rates decreased slightly. As of November 13th, the University's estimated borrowing cost was 4.17 (1) Short-term tax-exempt interest rates increased modestly (~0.03%) in the last month The University has $100 million in commercial paper outstanding, all of which is expected to be refinanced with a debt transaction in early 2019 The University plans to issue an additional $15 million in commercial paper in early 2019 to fund Clinical Transformation Estimated Future Funding FY (in millions) Authorized FY 2019 Issuance (A) Additional FY 2019 Commercial Paper (B) $ 100 Estimated Capacity from Debt (FY ) (B) 374 Total Debt Funding $ 500 (A) Authorized projects include HFS Phase 4a and Life Sciences (B) Estimated. Authorized projects include Clinical Transformation 26 A comprehensive review of the debt capacity methodology and a revised estimate were presented in May This analysis indicated $500 million in debt capacity (roughly equal to principal expected to be repaid FY19-23) Debt capacity estimates will be revised and presented in 2019 Additional capacity from the Capital Assets Pool is recalculated quarterly as the value of the Invested Funds (IF) changes and principal owed to the CAP is repaid Short-term equipment financing has minimal impact on capacity External Debt Portfolio (10/31/18) The University had $2,395 million of external debt outstanding. This is lower than the previous report ($2,397 million as of 9/30/2018) due to principal repayments of $2 million The weighted average cost of debt is 3.52% Between 2008 and 2013 outstanding debt grew by 15% annually. Since 2014, the annual growth rate slowed to 5%. Outstanding debt is projected to remain stable through 2023 $137 million of internal funding from the CAP is excluded from the external debt portfolio Fixed, 96% Non-ILP Debt, 26% ILP Debt, 74% Annual Debt Service Variable, 4% Millions $210 $180 $150 $120 $90 $60 $30 $0 (2) Maximum Annual Debt Service: $217M (3) General Revenue Bonds State Issued Bonds, Payable by UW Lease Revenue Bonds Other CP NWH (1) 80/20 weighting between the tax-exempt and taxable 30-year interest rates to illustrate the University's portfolio (2) Includes a $25 million of Commercial Paper repayment (3) Represents a large principal payment in FY36 F-2.1/ ATTACHMENT 1 Page 1 of 2

3 Variable Rate Debt Update December 2018 Long-Term Credit Rating: Aaa/AA+ Internal Lending Rate: 4.50% Weighted Average Cost of Debt: 3.52% Background The University has historically taken variable rate exposure in two ways: Through its $250 million commercial paper program, which is used to fund construction cash flows between long-term debt issuances Through long-term variable rate issuances. In 2004, the University issued $61 million of variable rate demand bonds. The bonds were refunded into fixed rate debt in 2008 In January 2019 the University intends to issue approximately $100 million in variable rate debt After the upcoming issue, the University's variable rate exposure will be approximately 4%. The University targets 10 to 15 percent to achieve its debt portfolio management objectives Market Update The decline in floating rate debt issuance since the financial crisis is due primarily to (1) less access to floating rate markets for lower rated borrowers and (2) borrowers choosing to lock-in low long-term rates The current difference between long-term and short-term tax-exempt debt is ~2% Moody's April 2017 Sector In-Depth Report noted, "Continued availability of short-term variable rate financing is credit positive for municipal issuers, especially those with large capital programs." 20% 15% 5% 0% Variable Rate Exposure Higher rated issuers and private institutions have a greater variable rate exposure 12% 17% 1% 5% 3% Aaa Aa A Baa Rating Category Privates Publics 0% 0% Variable rate debt provides an option for lowcost financing and helps diversify the debt portfolio and manage interest rate risk If variable rates rise issuers will benefit from offsetting increases in interest earned on cash balances While the risk of sharply higher interest rates and failed remarketings are inherent, these instruments make it possible for sophisticated issuers to lower costs, pair assets and liabilities, and diversify their capital programs Municipal Market Debt Issuance After the financial crisis, issuers sharply reduced variable rate exposures 100% 90% 80% 70% 60% 50% 40% 30% 20% 0% 11% 9% 9% 11% 9% 6% 5% 7% 8% 27% 24% 24% 24% 32% 89% 91% 90% 91% 89% 91% 94% 95% 93% 92% 73% 76% 76% 76% 68% Year of Issuance Fixed Rate Floating Rate F-2.1/ Page 2 of 2

4 Active Capital Projects Summary as of November 14, 2018 Project Name Financial Details Schedule Women & Minority Business Equity Project Health Trending Budget Forecast Funding Committed Target Forecast Committed Utilization Budget Funding Schedule Safety Business Equity Bill and Melinda Gates Center for CSE LMN Architects/Mortenson $ $ $ /18 12/18 $ % (1) (2) (1) UWMC ED East Extension Salus Architecture /Skanska $15.41 $15.14 $ /18 12/18 $ % Seismic Improvements - Phase 1 Schacht/Aslani Architects/CLARKCONS $17.60 $19.00 $ /19 6/19 N/A N/A New Burke Museum Olson Kundig/Skanska $79.70 $81.63 $ /19 7/19 $ % (3) (4) (1) Parrington Hall Renovation INTEGRUS Architecture, PS/Absher $20.00 $20.00 $ /20 1/20 $ % Kincaid Hall Psychology Renovation Perkins+Will/Skanska $30.00 $30.00 $ /20 6/20 N/A N/A Population Health Facility Miller Hull Partnership/LCL $ $ $ /20 7/20 $ % (5) Northwest Hospital Childbirth Center Zimmer Gunsul Frasca Architects/ABBOTT $25.00 $25.00 $ /20 9/20 N/A N/A NCH Phase IV(b): Denny Field, Haggett & Oak Halls Kieran Timberlake/Absher $86.20 $86.20 $ /21 7/21 $ % Foster School Expansion LMN Architects/Hoffman $70.00 $70.00 $ /21 8/21 $ % Health Sciences Education Building / $90.62 $80.62 $ /22 3/22 N/A N/A Totals $ $ $ $ % $ All Dollars in Millions Includes OMWBE certified and self-identified Women and Minority businesses. Targets Legend Budget: Budget is equal to or greater than Forecast (1% Tolerance) Funding: Funding and cashflow as planned Meeting Target Not Meeting Target, Plan in Place Schedule: Forecast is equal to or sooner than Target (14 Day Tolerance) Not Meeting Target, No recovery Plan in Place Safety: Total Recordable Incident Rate of 2.5 or lower Arrow Up Improvement from Previous Month Business Equity: On track for utilization of or higher Arrow Down Setback from Previous Month Notes: (1) Project General Contractor buyout largely complete and business equity goals cannot be met with remaining spend (2) Discovery of existing hazardous materials requiring abatement will result in a schedule extension (3) Project scope, budget and funding require alignment. Plan in place for alignment by end of year (4) Project budget and funding will be reconciled during existing building demolition and site improvements phase (5) Forecasted permit review times from the City are longer than anticipated. ATTACHMENT 2 F-2.2/ Page 1 of 1

5 Business Equity Scorecard as of November 14, 2018 Project Total Commitments Business Equity Commitments Total Project Budget Committed Forecast Uncommitted OMWBE Businesses (State-Certified Only) Women & Minority Businesses (Certified and Self-Identified) WBE, MBE, and SBE Businesses (Certified and Self-Identified) Project Name (A) (B) (B-A) ((B-A)/B) (C) (C/A) Firms (D) (D/A) Firms (E) (E/A) Firms Bill and Melinda Gates Center for CSE LMN Architects/Mortenson UWMC ED East Extension Salus Architecture /Skanska Seismic Improvements - Phase 1 Schacht/Aslani Architects/CLARKCONS New Burke Museum Olson Kundig/Skanska Parrington Hall Renovation INTEGRUS Architecture, PS/Absher Kincaid Hall Psychology Renovation Perkins+Will/Skanska Population Health Facility Miller Hull Partnership/LCL Northwest Hospital Childbirth Center Zimmer Gunsul Frasca Architects/ABBOTT NCH Phase IV(b): Denny Field, Haggett & Oak Halls Kieran Timberlake/Absher Foster School Expansion LMN Architects/Hoffman Health Sciences Education Building / $93.11 $96.24 $96.43 $ % $ % 11 $ % 18 $ % 32 $13.38 $12.51 $13.11 $ % $ % 6 $ % 8 $ % 18 $14.90 $1.62 $16.86 $ % $ % 0 $ % 0 $ % 3 $70.32 $63.86 $72.11 $ % $ % 16 $ % 32 $ % 99 $16.43 $0.62 $16.43 $ % $ % 1 $ % 1 $ % 3 $0.00 $0.30 $27.30 $ % $ % 0 $ % 0 $ % 0 $ $65.02 $ $ % $ % 6 $ % 9 $ % 19 $0.00 $0.02 $25.00 $ % $ % 0 $ % 0 $ % 1 $74.89 $7.96 $74.89 $ % $ % 8 $ % 7 $ % 15 $57.74 $0.07 $57.74 $ % $ % 1 $ % 1 $ % 2 $78.15 $0.87 $69.47 $ % $ % 0 $ % 0 $ % 2 Totals $ $ $ $ % $ % 32 $ % 55 $ % 151 Project Total Commitments and Budget include only costcodes that are business equity eligible, those that are not (such as permits and sales tax) are excluded. Firm total is a distinct count per Project Bottom Line total is count of distinct firms across all projects F-2.3/ ATTACHMENT 3 Page 1 of 1