ITEM 126-2005-R0105

January 20-21, 2005

ITEM 126-2005-R0105  Authorization to Utilize Multi-Modal Variable or Fixed Rate Debt Instruments, with an Interest Rate Swap Agreement, Series J 2005 Facilities Revenue Bond Issue; Montana State University-Bozeman

THAT: The Board of Regents of the Montana University System adopts the Bond Resolution for the Series J 2005 Revenue Bonds for Montana State University-Bozeman and authorizes Montana State University and the Commissioner of Higher Education of the Montana University System to utilize Multi-Modal Variable or Fixed Rate Debt Instruments, with an Interest Rate Swap Agreement, for the issuance of these bonds.

EXPLANATION: 1. This authorizes the Chair of the Board of Regents, the Vice Chair of the Board of Regents, the Commissioner of Higher Education, the President of Montana State University, and the Vice President for Administration & Finance of Montana State University-Bozeman to execute such documents as may be required to consummate the issuance of the Series J 2005 Facilities Improvement Revenue Bonds.

2.             This authorization to proceed is subject to final action, to initiate the offering of bonds as well as any related interest rate swap agreement, by the University and the Commissioner of Higher Education of the Montana University System.

3.             Proceeds from the issuance of these bonds will be utilized for the construction projects contained in the Student Facilities Enhancement project, and for the associated costs of bond issuance.

4. At its May 20, 2004 meeting the Board of Regents authorized Montana State University to pursue a Student Facilities Enhancement Project involving the Strand Union Building (SUB) Renovation, H&PE Complex Renovation, and Black Box Theater construction.

5.             With its May 2004 action the Regents authorized MSU to proceed with the design and construction of the facilities, with the understanding that construction would not proceed until MSU requested authorization for the sale of bonds from the Board of Regents at a future meeting.

6.             This Item requests Regent authorization to proceed with the bond issue necessary to fund a majority of the Student Facilities Enhancement project.

7.             Design work is proceeding on all three projects. Construction bids are scheduled to be opened in late spring or early summer for the Black Box Theater and the SUB Renovation, and in January 2006 for the H&PE Complex Renovation.

8.             The total project construction cost authorized by the Regents is $28,000,000. Approximately $2,500,000 will be funded from Auxiliary cash reserves. The remaining construction costs will be funded through this proposed bond issue, which will be repaid with a combination of non-state funds from Auxiliary Operations Revenues, and from a student fee approved by the student body in April 2004.

9.             The student-approved fee for this project is planned to begin in Fall Semester 2005. It will be submitted for final Regent approval during the May Board meeting of this year, as one element of the Regents' biennial tuition/fee approval process.

10.         In order to secure the lowest possible interest rate for this bond issue it is proposed that MSU be authorized to engage in a variable-to-fixed interest rate swap agreement in February, to lock-in a fixed rate of interest, if market conditions indicate that traditional fixed rates will likely rise through the winter. This resolution also authorizes the University and the Commissioner to undertake and complete the final terms and provisions of the Swap Agreement in a manner determined to be in the best interests of the University, including a provision for a counterparty early termination clause.

11.         Bonds must be sold in early summer to provide funds necessary for anticipated construction costs. If an interest rate swap agreement has been signed, then variable rate bonds will be sold.

12.         In accordance with the Bond Resolution, this bond issue is intended to have a 30-year term, with a final maturity on November 15, 2035. If issued in a fixed rate mode the interest rate will be no more than 5.75% per annum; and if issued in a variable rate mode, the initial interest rate will be no more than 3.50% per annum.

13.         The preliminary financial data for the Series J 2005 bond issue is as follows:

ATTACHMENTS: A. Summary Comparison of Costs for Bond Issue Alternatives

B. History of Evaluation and Consideration of Innovative Financing Techniques

C. MSU Interest Rate Swap Policy Development and Oversight Committee

D. Series J 2005 Bond Resolution