The University of California will take steps to reconsider its approaches to debt management as part of its ongoing efforts to ensure that it has the best possible financial strategies to meet the University's future capital needs, President Robert C. Dynes announced at last week's Board of Regents meeting in San Francisco.

“As part of our broader initiatives to improve operational efficiencies, maximize our resources and save money, it is important that we reconsider the University's debt strategy, including the level of debt we have, the mix of our debt instruments, and how we use our debt strategy in support of our public mission,” Dynes said.

The review will cover two major areas:

- External debt strategy, including UC's overall debt capacity, types of debt instruments and maturities, rating management, and the variety of debt tools.

- Internal debt guidelines, including the criteria and process by which the University allocates its debt capacity internally and financing feasibility guidelines.

“Debt is the most important source of funding for UC's capital program,” Regent Richard C. Blum said. “A good debt strategy carefully balances between meeting capital needs and taking on debt risk, and allocates debt capacity in line with strategic priorities.”

The presentation to the regents also noted the time sensitivity of the issue, with rising interest rates and construction costs as well as upcoming actions such as the issuing of pooled medical center debt in January 2007 and meetings with rating agencies in the coming months.

The debt restructuring process will be an inclusive process, bringing together UC's financial experts and campus administrators responsible for creating facilities for research and academic programs.

“Academic priorities will drive the process,” Dynes said.

“We need to think ahead to where science is going, and we need to give our research superstars the facilities they need, or we risk losing them,” Blum said.

“We need to remove the roadblocks to make it less bureaucratic and shorten the time of getting projects approved,” Blum said. “We can save hundreds of millions of dollars if we do this better.”

Lehman Brothers has been retained to advise the University on the debt-restructuring process as well as certain high-priority capital projects as may be appropriate.

It is expected that a proposed new debt strategy would be presented to the regents' finance committee in January 2007.

# # #