The University of Michigan is working to establish additional lines of credit for up to $1 billion for general operating purposes to enhance the university’s financial safety net in the event of a financial emergency.
The recommendation from Executive Vice President and Chief Financial Officer Kevin Hegarty was approved March 26 by the university’s Board of Regents. Hegarty and his staff now will finalize the terms of these additional lines of credit.
Hegarty said the new lines of credit would be used solely for contingent liquidity support (cash flow) and only drawn on to support existing debt that may need to be rolled over or refinanced in a difficult market, or to provide cash flow in the event of a university financial emergency.
“Having standby lines of credit available for general operating purposes will reinforce the overall liquidity position of the university, help support the university’s credit ratings and hedge the impact of potential catastrophic events such as a pandemic, global financial crisis or federal government shutdown,” Hegarty wrote in his recommendation to the board.
While the university does not expect to use the full amount of the lines, its strong credit ratings allow it access to these lines, which the university believes will be prudent given the current uncertainties it and other universities are facing.
Similar to other large research universities that have credit lines in place, the university’s cash position has historically been very strong and the lines will provide additional access to liquidity if needed, Hegarty explained.
He said the size of the line of credit — $1 billion — was based on the overall scale of the university, amount of monthly salary, benefits and debt service expenses, and levels of capital spending expected over the next five years. The university has a total annual operating budget more than $9 billion.
If the university draws on these new lines of credit, the unpaid principal and interest on any amounts used for general operating purposes would be due no later than Dec. 31, 2030.
Hegarty said these new lines of credit, similar to all existing bonds and commercial paper notes of the university, would be supported by a pledge of the university’s general revenues.