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Debt Management

  • Responsible Office: Treasury Services, Finance and Budget
  • Current Approved Version: 05/06/2021
  • Policy Type: Board of Visitors

Policy Statement and Purpose

Virginia Commonwealth University’s mission as a premier, urban, public research university in Virginia is to advance knowledge and student success through its commitments to:

  • An engaged, learner‐centered environment that fosters inquiry, discovery and innovation in a global setting;
  • Research that expands the boundaries of new knowledge and creative expression and promotes translational applications to improve human health;
  • Interdisciplinary collaborations that bring new perspectives to complex problems and mobilize creative energies that advance innovation and solve global challenges;
  • Healthcare that strives to preserve and restore health for all people, to seek the cause and cure of diseases through groundbreaking research, and to educate those who serve humanity;
  • Diversity that provides a climate of inclusion, a dedication to addressing disparities wherever they exist, and an opportunity to explore and create in an environment of trust; and
  • Sustainable, university‐community partnerships that enhance the educational, economic and cultural vitality of the communities the university serves in Virginia and around the world.

This policy sets forth the university’s policies regarding the use of debt and interest rate swaps to provide funding for projects in support of the university’s mission of being a preeminent leader in teaching, learning and research. The university maintains a strategic plan that is also supported by a campus master plan. The university develops a six‐year capital plan in support of its strategic plan and campus master plan.

The use of debt and interest rate swaps are an important part of the funding plan for the university’s capital plan and this policy will create the link between the use of debt and the university’s mission and strategic goals.\

There is a close collaboration between the university and the VCU Health System. This debt management policy explicitly recognizes and reiterates the separation of responsibility for debt incurred or guaranteed by the VCU Health System and the university. The two entities will examine their mutual needs and opportunities, including the exploration of financing alternatives by VCU Health System, the university, or a combination thereof.

The objectives of the debt management policy are to:

  1. Provide guidelines for strategic use of debt in terms of affordability and capacity
  2. Establish a framework for allocating the university’s use of debt for projects that most support the mission and strategic goals of the university
  3. Establish debt reporting guidelines
  4. Establish debt management and risk guidelines
  5. Establish guidelines under which interest rate swaps may be issued and monitored.

The university seeks to manage its debt and overall financial profile with the following goals:

  1. Manage the university credit profile in order to:
    • Meet its strategic objectives;
    • Maintain requirements under the Management Agreement dated March 12, 2008 (as amended and renewed from time to time) between the Commonwealth of Virginia and the Board of Visitors (the “Board”) of the Virginia Commonwealth University, in order to provide the university flexibility to issue debt, on its own behalf, under the State’s Restructured Higher Education Financial and Administrative Operations Act of 2005;
    • Maintain access to the capital markets;
    • Obtain favorable costs of capital, flexibility, and terms within its desired risk profile.
  2. Optimize the university’s debt capacity and composition (fixed rate versus variable rate, short‐term versus long‐term, direct debt versus indirect debt versus privatized financing, public debt versus private debt, taxable versus tax-exempt)
  3. Manage the repayment schedule of the debt in order to preserve debt capacity and flexibility over the longer term while also meeting the liquidity objectives of the university.

The policy establishes a framework from which the university will make decisions on how much debt to issue, types of debt, risk composition, and project prioritization. These guidelines exist to ensure that the university maintains its strong financial position in order to better fulfill and support its mission.

Noncompliance with this policy may result in disciplinary action up to and including termination. VCU supports an environment free from retaliation. Retaliation against any employee who brings forth a good faith concern, asks a clarifying question, or participates in an investigation is prohibited.

Who Should Know This Policy

Board of Visitors, President, President’s Cabinet, all university employees engaged in activities related to debt issuance or debt management and VCU-external partners involved with debt administration are responsible for knowing this policy and familiarizing themselves with its contents and provisions.


Asset/Liability Matching – the term and amount of assets and liabilities in order to mitigate the impact of changes in interest rates.

Bid/Ask Spread – The difference between the bid price (at which a market maker is willing to buy) and the ask price (at which a market maker is willing to sell).

Call Option – The right to buy an underlying asset (e.g., a municipal bond) after a certain date and at a certain price. A call option is frequently embedded in a municipal bond, giving the issuer the right to buy, or redeem, the bonds at a certain price.

Collateral – Assets pledged to secure an obligation. The assets are potentially subject to seizure in the event of default.

Debt Burden or Debt Ratio – Annual debt service cost of university debt, including capital lease payments, as a percentage of operating expenses.

Interest Rate Swap – Forward contract in which one stream of future interest payments is exchanged for another based on a specified principal amount. Interest rate swaps usually involve the exchange of a fixed interest rate for a floating rate, or vice versa, to reduce or increase exposure to fluctuations in interest rates or to obtain a marginally lower interest rate than would have been possible without the swap.

Liquidity Support – An agreement by a bank to make payment on a variable rate security to assure investors that the security can be sold.

London Interbank Offered Rate (LIBOR) – A benchmark interest rate at which major global banks lend to one another in the international interbank market for short-term loans. LIBOR is scheduled to be replaced by SOFR over time beginning October 2020.

Notional Amount – The amount used to calculate payments made on a swap.

Official Intent – an issuer's declaration of intent to reimburse an original expenditure with proceeds of an obligation.

Secured Overnight Financing Rate (SOFR) – A benchmark interest rate for dollar-denominated derivatives and loans which is to replace the London interbank offered rate (LIBOR) over time beginning October 2020.

Tax-Advantaged and Tax-Exempt Debt – Debt obligations which carry some form of tax benefit for the issuer or the investor for the security. For “tax-exempt” securities, the benefit is realized by the investor as interest which is excluded from gross income for federal income tax purposes. Such interest may or may not be exempt from state income or personal property taxation in the jurisdiction in which it was issued or in other jurisdictions. For “tax-credit” bonds, the bondholder may receive, in lieu of interest payments, a credit against federal income tax or the issuer can receive a subsidy towards the interest payments. Tax-advantaged and tax-exempt debt may be referred to as “tax-exempt debt”.

Termination – A payment made by a counterparty that is required to terminate the swap. The payment is commonly based on the market value of the swap, which is computed using the rate on the initial swap and the rate on a replacement swap.


Treasury Services officially interprets this policy. The Treasurer is responsible for obtaining approval for any revisions as required by the policy Creating and Maintaining Policies and Procedures through the appropriate governance structures. Questions about the policy should be directed to Treasury Services.

Policy Specifics and Procedures

Oversight and Approvals

The Senior Vice President and Chief Financial Officer (CFO) and the Treasurer are responsible for implementing this policy and for all debt financing activities of the university. The policy and any subsequent, material changes to the policy are approved by the university’s Board of Visitors. The approved policy provides the framework under which debt management decisions are made.

Compliance with this policy is monitored by VCU Treasury Services. The Senior Vice President and CFO reports no less than annually to the Board on the university’s debt position and plans.

The Board must approve the issuance of debt and establish the financing parameters to be followed by the university prior to issuing long‐ or short-term debt. Additionally, prior to issuing tax‐exempt debt of which at least a portion will be used to reimburse the university for prior expenditures, federal tax law (Treasury Regulation Section 1.150-2) requires the Board or a designated authority so delegated to declare the intent to issue tax‐exempt debt  and authorize the use of proceeds for reimbursement of allowable expenses. Authorization to refund debt may be granted by the full board or by the Rector and Chair of the Finance, Budget and Investments committee per  a Resolution of the Board dated March 4, 2014, as amended. Authorization to declare the Official Intent to reimburse preliminary expenditures may be granted by the full board or by the Senior Vice President and CFO, as Authorized Officer (as defined), per a Resolution of the Board dated September 19, 2013, as amended.

The university issues debt on its own behalf under Chapter 23 of Title 23.1 of the Virginia Code or non‐ State Tax Supported Debt under the State’s Restructured Higher Education Financial and Administrative Operations Act of 2005, Chapter 10 of Title 23.1 (the “Restructuring Act”) and pursuant to the Management Agreement. In compliance with the Management Agreement, Treasury Services will notify the Treasurer of the Commonwealth of the intent to issue bonds at the time it adopts such intent.

In compliance with the Management Agreement, Treasury Services will notify the Treasurer of the Commonwealth of the intent to modify this policy for review and comment prior to its adoption by the university.

Project Prioritization

The university recognizes that debt as a source of capital is scarce, and it is essential that the university has ready, cost effective access to capital. The university also recognizes that institutions may be constrained by the amount of capital projects that can be supported without jeopardizing long‐term strategic goals. Therefore, not every desired project can, nor should be financed by debt. The university will make decisions relative to the use of debt as it considers each project in the context of the university’s mission.

The university will evaluate the funding sources for proposed capital projects in the context of the strength of the project, its role in supporting the mission of the university, strategic priorities of the university, and in the context of the guidelines provided in this debt management policy. In general, projects will be given priority for debt financing if they are educational, research related and critical to the mission of the university. In prioritizing projects to be university debt financed, the university will consider:

  • strategic importance to the university and the role the project plays within the strategic plan, or
  • revenue producing projects or projects that are otherwise able to support the associated debt and are not dependent on the general revenue pledge of the university and would be considered “off‐credit”.

The university budget committee  oversees the management of the university’s annual operating and capital budgets and reviews resource issues of campus‐level significance that arise within the fiscal year. The university will ensure the budget committee evaluates the funding sources for all university debt‐ financed projects prior to approval by the Board.

Debt Affordability and Capacity

In evaluating the university’s current debt levels and future debt financings, the university will consider the impact of its total debt on both its debt affordability and debt capacity. Debt affordability considers the university’s ability to pay the debt service on an annual basis through its operating budget and identified revenue streams. Debt capacity considers the university’s financial resources and the university’s ability to leverage its financial resources to finance certain capital projects. The university recognizes that, in order to achieve its strategic goals, it may issue debt in excess of its targeted debt capacity but in all cases, it will not issue debt that will jeopardize its Management Agreement with the Commonwealth of Virginia.

The university will measure its debt service burden as a percentage of total university expenses.

To maintain a credit rating consistent with the university’s Tier III designation, the university will strive to not exceed the level established by the rating agencies for the university’s rating level and in no instance greater than 6.0%. This ratio is a measure of the university’s long‐term operating flexibility.

In evaluating a future debt issuance, the university will also compare its financial profile to that of the Moody’s and Standard & Poor’s medians for the AA rating category as well as compare the university to a select group of other public institutions as determined by the Office of Treasury Services in consultation with the university’s financial advisor and underwriters. The university recognizes that the financial ratios are one component of the overall credit profile and that state funding, demand, and other industry dynamics could affect the way in which the rating agencies assess the credit rating of a public higher education institution. The financial ratios, median and peer comparisons will be presented to the Board of Visitors on an annual basis and at the time of a proposed financing.

Debt Management

The university views its debt portfolio holistically and will manage its debt level, debt composition, and risk profile from a portfolio standpoint.

In considering types of financing structures and funding sources available to the university, VCU will evaluate the benefits, risks and costs of each financing structure and funding source. The financing structure will be reviewed within the context of the goals of this debt management policy and the university will perform a financial and risk analysis to determine the impact of the proposed financing on its debt capacity and debt affordability financial ratios. A proposed financing that would result in the university exceeding identified target ranges would require the Board of Visitors to approve and acknowledge the strategic importance of the project despite the impact on key financial ratios.

The university will actively manage its debt portfolio to take advantage of current market conditions, either to generate economic savings, to take advantage of alternative financing structures that would optimize the university’s debt structure in the context of its goals identified in the debt management policy, or for strategic purposes.

Risk Management

The university recognizes that there is a correlation between risk and cost and there are appropriate risks that the university may assume in order to optimize its debt portfolio. The university also recognizes that the risks in the university’s debt portfolio should be viewed holistically and in the context of its assets, liabilities and operations. The university will identify and quantify its risk exposure to interest rate risk and its resulting impact on the university’s operating budget and liquidity risk and its impact on the university’s balance sheet and liquidity objectives for its assets.

The university recognizes the value and flexibility that short‐term debt or variable rate financing contributes to its debt portfolio. While interest rate risks associated with variable rate debt can be mitigated through asset/liability management, liquidity risk and market access risk remain in certain financing structures. The university will maintain "Committed Debt" of no less than 70 percent of total debt. Committed Debt is defined as any debt that is either committed to maturity without a put or has a put that is exercisable in no less than two years.

The university may consider the use of derivative products in order to achieve the goals outlined in its debt management policy. Derivatives will only be undertaken by the university upon quantification and evaluation of their risks and done so in accordance with the Swap guidelines shown in Appendix A.

In addition, the university will consider the risks associated with concentration of banking services, credit and counterparty providers, including in the investment portfolio, in order to diversity its dependency risk on financial institutions.

Post Issuance Compliance

The university has adopted post issuance compliance procedures through its Tax‐Exempt Debt Compliance Policy in order to ensure that it complies with federal tax law requirements for the use of tax‐exempt debt. The policy provides a framework for complying with federal laws relating to the issuance and post‐issuance monitoring of tax‐exempt bonds.

Reporting and Monitoring Requirements

The university will provide a report to the Board of Visitors on an annual basis that demonstrates compliance with its debt management policy, including key financial ratios and quantifying risk elements of the debt portfolio. A pro‐forma analysis of the key financial ratios will be presented to the Board of Visitors in advance of approving a proposed debt financing. VCU Treasury Services will monitor the financial ratios and risk exposure on a regular basis.


There are no forms associated with this policy and procedures.

Related Documents

Revision History

This policy supersedes the following archived policies:

Initial Approval: November 16, 2006 VCU Debt Management Policy

Approved Revision: September 19, 2013 Debt Management

Approved Revision: May 6, 2021 Debt Management


There are no FAQs associated with this policy and procedures.

Appendix A: Interest Rate Swap Guidelines

Debt Management Appendix A (PDF Version)

Debt Management Appendix A (Word Version)