University of Connecticut Bond Issues

Debt Service

Pursuant to Section 10a-109x of the Connecticut General Statutes, the Semiannual Report to the General Assembly is to list the payment of debt service requirements and the payment of principal and interest on the UCONN 2000 securities.
General Obligation Debt Service Commitment Bonds
The State General Fund pays the debt service and any arbitrage rebate due on the University’s General Obligation Debt Service Commitment Bonds. The University pays the debt service on the Special Obligation Student Fee Revenue Bonds from its own resources.
As of April 1, 2009:

Since the program’s inception in 1996 total UCONN 2000 General Obligation Debt Service Commitment debt service (which is paid by the state) amounted to $1,724.7 million, representing $1,169.6 million of principal and $555.1 million of interest (including the Refunding Bonds but net of refunded debt).
Of this amount, debt service of $787.2 million, representing $469.5 million of principal and $317.7 million of interest (including capital appreciation bonds) has been paid.
Future debt service requirements amount to $937.6 million representing $700.1 million of principal and $237.5 million of interest (including capital appreciation bonds).

For the fiscal year endingJune 30, 2008, the Debt Service Commitment paid for the University’s General Obligation Bonds amounted to $98.8 million (representing $59.7 million of principal and $39.1 million of interest).
Special Obligation Student Fee Revenue Bonds
From time to time, the University may issue Special Obligation Bonds secured by certain revenue flows including student fees. The University is responsible for paying the debt service and any arbitrage rebate due on its Special Obligation debt. All other things equal, the Special Obligation bonds incur proportionally more interest expense because they are generally issued for terms of up to approximately thirty years compared to twenty years for the Debt Service Commitment bonds. The longer maturities generally represent the cost of the assets financed by the bonds being spread over the student populations utilizing the assets.
As of April 1, 2009:

Total UCONN 2000 Special Obligation Student Fee Revenue debt service (which is paid by the University) amounted to $392.6 million, representing $205.1 million of principal and $187.5 million of interest (including the Special Obligation Student Fee Revenue Refunding 2002 Series A Bonds net of refunded debt service).
Of this amount the University had paid debt service of $107.0 million (representing $30.5 million of principal and $76.5 million of interest).
Debt service remaining totals $285.6 million comprising $174.6 million of principal and $111.0 million of interest (including capital appreciation bonds).

For the fiscal year ending June 30, 2008, the University paid from its own resources Special Obligation Bond debt service of $13.2 million (representing $4.3 million of principal and $8.9 million of interest).
The UCONN 2000 Special Obligation Student Fee Revenue 1998 Series A Bonds carry the State Special Capital Reserve Fund. Consequently, pursuant to Section 909 of the Special Obligation Indenture on or before December 1, annually, if the SCRF amount falls below the required minimum capital reserve the Chairman of the Board of Trustees is to file a Certification with the Secretary of the Office of Policy and Management and the State Treasurer to replenish the Special Capital Reserve Fund. Upon such notification there is deemed to be appropriated, from the State General Fund, sums necessary to restore each Special Capital Reserve Fund to the required minimum capital reserve. To date the University's Debt Service Requirement has been fulfilled as pledged in the Indenture, and no such certification has been required.

Tax-Exempt Governmental Lease Purchase Agreement
The University is responsible for paying the debt service and any arbitrage rebate for the Tax-Exempt Governmental Lease Purchase Agreements. The two financing tranches provided $81,900,000 of funding for a cogeneration facility for the UCONN 2000 Heating Plant Upgrade project. Tax-Exempt Governmental Lease Purchase Agreement debt Service payments commenced on January 29, 2006.
Debt is to be paid in 240 monthly installments of $517,135 each. Over the life of the financing, debt service totals $124,112,424 comprising $42,212,424 of interest and $81,900,000 of principal.
As of April 1, 2009:

The University had paid down the Tax-Exempt Governmental Lease Purchase Agreement debt service by $20.7 million (representing $9.1 million of principal and $11.6 million of interest).
Remaining debt service amounts to $103.4 million (representing $72.8 million of principal and $30.6 million of interest).

For the fiscal year ending June 30, 2008, the University paid from its own resources Tax-Exempt Governmental Lease Purchase Agreement debt service of $6.2 million (representing $2.8 million of principal and $3.4 million of interest).
Investment of Debt Proceeds - Management, Investment and Earnings
The proceeds of the sale by the University of any bonds are part of the Trust Estate established under the General Obligation Master Indenture of Trust with the Trustee Bank as security for bondholders. Consequently, the University holds all of the bond proceeds at the Trustee Bank, with this exception: the Costs of Issuance account funded by the University’s General Obligation Debt Service Commitment bonds may be held and invested by the State Treasurer’s Office in a segregated account. The Special Obligation Master Indenture has similar Trust Estate provisions. The Trustee Bank holds all of the Special Obligation bond proceeds received at issuance including the Costs of Issuance account.
Prior to June 1998, all UCONN 2000 General Obligation Debt Service Commitment Bond proceeds were deposited with the Office of the State Treasurer and treated like state bond proceeds, including payments made to vendors through the Office of the State Comptroller. Subsequently, the Office of the Attorney General opined that the University, and not the state, issues UCONN 2000 bonds. Accordingly, upon advice of bond counsel and in conformity with the Master Indenture of Trust, Debt Service Commitment Bond construction fund proceeds were deposited to the Trustee Bank and disbursed as directed by the University pursuant to the Indenture. The UCONN 2000 General Obligation Debt Service Commitment Bond proceeds for costs of issuance are still treated like state bond proceeds and deposited with the Office of the State Treasurer and disbursed through the Office of the State Comptroller.
The Indentures of Trust provide that the University is authorized and directed to order each disbursement from the Construction Account held by the Trustee upon a certification filed with the Trustee bank and, in the case of the Debt Service Commitment bonds, the State Treasurer. The Indentures provide that such certification shall be signed by an Authorized Officer of the University and include certain disbursement information. Once the Authorized Officer certification filings are made, the University can directly disburse payments.
The investment of tax-exempt debt proceeds is heavily regulated by the Internal Revenue Service, the relevant Indentures of Trust with bondholders, Connecticut law, and other regulatory restrictions. In addition to meeting those requirements, the University’s general investment policy is to balance an appropriate risk-return level, heavily weighted towards safety of assets, with estimated cash flow needs and liquidity requirements. The University is also mindful that the rating agencies, bond buyers, and bond insurers often weigh the quality of an issuer’s investment portfolio.
Bond proceeds form part of the Trust Estate established with the Trustee Bank as security for bondholders. To date, the University has directed the Trustee Bank to invest any Debt Service Commitment construction fund proceeds in the State Treasurer’s Short Term Investment Fund (“STIF”) which is “AAA” rated and offers daily liquidity and historically attractive risk-adjusted yields. The State Treasurer’s Office wishes to hold and invest the University’s General Obligation Bonds Debt Service Commitment funded Costs of Issuance account, a much smaller account.
The General Obligation Debt Service Commitment Refunding 2007, 2006 and 2004 Series A Bond proceeds, other than the costs of issuance, are held by the Trustee Bank in an irrevocable escrow fund, which is invested in U.S. Treasury Securities and/or U.S. Treasury State and Local Government Securities (“SLGS”) and cash pursuant to the relative Escrow Agreements.
It has been the University’s practice to invest all of the Special Obligation new money bond proceeds, including the debt service funds, in dedicated STIF accounts, with the exception of the 1998 Special Obligation Special Capital Reserve Fund which from time to time has also been invested in longer term “AAA” rated federal agencies’ fixed income Investment Obligations as defined in the Special Obligation Indenture of Trust.
The Special Obligation Student Fee Revenue Refunding 2002 Series A Bond proceeds, other than the costs of issuance and debt service accounts that are invested in STIF, are held by the Trustee Bank in an irrevocable escrow fund, which is invested in U.S. Treasury State and Local Government Securities (“SLGS”), and cash pursuant to the Escrow Agreement.
The University’s General Obligation Debt Service Commitment bond proceeds investment earnings are retained and recorded by the State Treasurer’s Office and do not flow to the University or to the Trustee Bank. The University’s Special Obligation bond investment earnings are part of the pledged revenues and are directly retained by the Trustee Bank to pay debt service on the bonds, and may also be used to flow to other Trustee bond accounts, if necessary, pursuant to the Indenture of Trust. Fiscal year end June 30, 2008, UCONN 2000 Special Obligation Student Fee Revenue Bonds (not including the refunding escrow) investment earnings amounted to $130,416.98 (cash basis).
Investment earnings on the Special Obligation Student Fee Revenue 2002 Series A Bonds Refunding Escrow Account flow to the irrevocable escrow and are used by the Trustee Bank to meet debt service payments on the defeased bonds. Similarly, investment earnings on the General Obligation Debt Service Commitment 2007, 2006 and 2004 Series A Bonds Refunding Escrow Accounts flow to their respective irrevocable escrows and are used by the Trustee Bank to meet debt service payments on the defeased bonds.
On December 29, 2005, the University received $15,847,241.65 representing the last advance of the $81,900,000 of funds to the University under the Tax-Exempt Governmental Lease Purchase Agreement for the Heating Plant Upgrade Cogeneration facility. These funds, and the related investment income, are for uses related to the Cogeneration financing and were deposited in a dedicated STIF account. During December 2006, part of the remaining proceeds, representing the initial December 18, 2003 financing, was yield restricted by investing it in a dedicated Tax Exempt Proceeds Fund. Tax-Exempt Governmental Lease Purchase Agreement investment income for the fiscal year ending June 30, 2008 amounted to $73,715.21 (cash basis).