1809 Interfund Borrowing – Internal Capital Project Loan (Icpl)

Document purpose

This policy governs the extension of internal loans from the University’s working capital for the purpose of financing construction.

effective

February 2021

revised

February 2021

Reviewed

February 2021

Responsible Office

Treasurer

Approval

Treasurer

Purpose

This policy governs the extension of internal loans from the University’s working capital for the purpose of financing construction.

The objectives of the ICPL include the following:

  • Provide a source of funding for construction which the school or center cannot self-fund during the project.
  • Provide longer term capital project funding as a cost sharing mechanism when School/ Center reserves and/ or gift funding does not fully cover project costs and a School/ Center business plans supports longer term debt repayment.
  • Provide bridge funding for project gift pledges maturing in five years or less.
  • Ensure that construction loans will not be authorized without the borrowing school or center submitting a fiscally responsible and achievable business plan in support of timely repayment.

Policy

  1. Responsibility:

    The Office of the Treasurer is responsible for administering the ICPL program.

  2. Terms and conditions:

    Individual loans administered under this program must be $1,000,000 or more unless approved by the VP for Finance and VP Budget Planning and Analysis.

    Loan term will generally be 7 years for renovation projects or 20 years for new construction or years consistent with the useful life for Century Bond Projects.  There is limited availability for Century Bond eligible projects, limited to projects approved by Facilities that address high or immediate deferred maintenance and/or help the University meet its energy efficiency goals.  Other terms may be available as approved by the Vice President for Finance, but not to exceed the useful life of the project being financed.  For bridge loan funding, loan term will correspond to the underlying pledge schedule.

    Borrowers will repay loan principal and interest over a predetermined term through annual charges to the borrower’s operating account as shown in a final loan schedule signed by the University VP Finance and the Dean for Schools or Division Head for Resource or Administrative Centers.

    Loans may be prepaid early without penalty at any time.

  3. Interest charges:

    Amortized Interest will be calculated on the loan balance beginning on the date on which the funds are deposited into the appropriate general ledger account.

    During the construction period, payments on outstanding loan balances will be charged at the University’s short term loan rate.  When the project is completed, interest will adjust to the long-term rate.

    The Treasurer’s Office will annually review both short- and long-term interest rates, considering external market rates, the University’s cost of capital, and program administration.

  4. Approvals:

    All loan requests are to be submitted to the Office of the Treasurer. (see section 5, below)

    Loan requests should first be approved/ signed by the School Dean/ Center Division Head and Senior Business Administrator prior to submission.

    Loans will require additional approval from the Capital Advisory Group and Capital Council.  Debt financing of projects must be approved by the Treasurer’s Office prior to submission to the Capital Advisory Group.

  5. Loan request procedures:

    Loan requests must be submitted to Treasurer’s Office Jeff McCray (jmmccray@upenn.edu) with a copy to your Budget Office analyst during project planning as soon as the need for loan funding is expected, or at a minimum two weeks prior to project submission to the Capital Advisory Group. Requests should include the application accompanied by the loan request documentation noted in Section 6.

  6. Loan request documentation:

    Loan requests should be submitted with the accompanying Internal Loan Application that includes:

    • Amount of the loan being requested
    • The estimated useful life of the project
    • Repayment period requested
    • 26-digit budget code to be charged for debt service

    The request should also include a business plan with the following components:

    • Executive Summary
    • Background/ Rationale
    • Business Description/ Objective
    • Market Analysis (if applicable and/or associated with a revenue generating activity)
    • Opportunities and risks associated with this investment
    • Funding requirements
      • Detailed project description
      • Amount of Gift Receipts (including capital gift fund number, GL fund cash and receivables balance, pledge cash flow schedule, and estimated pipeline but excluding any confidential donor details)
    • Financial Analysis/ Projections
      • Proforma analysis of School/ Center with five year’s financial history (actual results), and five-year projection. Projections should clearly note incremental operating expenses of capital project and the estimated debt service payment provided by the Treasurer’s Office.
      • Copy of the departmental budget as recorded in Planning (the A5-Multi-Year Summary Report)
      • Five-year history of unrestricted cash balances, noting any projected commitments against these balances
    • Dated signature of School Dean/ Center Division Head and Senior Business Administrator

    Upon review and approval of the Loan Request and Business Plan, the Office of the Treasurer will facilitate further approval by the Capital Advisory Group and Capital Council.

    The Treasurer’s Office will advise the School/ Center if the Loan Request is approved.  If the Loan Request is approved, a formal amortization schedule in a Memorandum of Agreement (“MOA”) will be prepared for the school/center’s review, signature, and return.