18.104.22.168 Ithaca College Conflict of Interest Policy for Members of the Board of Trustees, Officers and the Five Highest Compensated Employees of the College
Amended by the Board of Trustees on May 17, 2014 and October 10, 2014.
The following statement of policy applies to all voting members of the Board of Trustees (“Trustees”), all officers of the College (“Officers”), and the Five Highest Compensated Employees of the College as reported on IRS Form 990.
Trustees, Officers and the Five Highest Compensated Employees owe special duties of care and loyalty to the College as they are responsible for the total well-being of the institution. They must place the welfare of the College above their own personal interest and place as secondary any possible alumni, faculty, student, family or outside business interests. Using the trustee or officer position for personal gain or advantage or to obtain favored status for or from a special interest group or business, affiliates, or family over the best interests of the institution and the public good is to be avoided. Trustees, Officers and the Five Highest Compensated Employees should avoid even the appearance of a conflict of interest that might embarrass the board or the institution and to reveal these possible conflicts in a timely fashion.
Disclosure of Known or Possible Conflicts of Interest
Trustees, Officers and the Five Highest Compensated Employees shall advise the chairperson of the Audit Committee of any known conflict or possible conflict of interest, direct or indirect, personally or through any other related or affiliated person, persons or other entity relating to financial or other transactions with or interests involving the College, regardless of dollar amount.
The “Conflict of Interest Annual Disclosure Statement,” as approved by the Board of Trustees, shall be provided to Trustees, Officers and the Five Highest Compensated Employees on an annual basis. These forms shall be filed with the secretary of the board who shall provide copies to the chairperson of the Audit Committee and, in the case of Officers, to the president. It is the responsibility of Trustees, Officers and the Five Highest Compensated Employees to keep these forms current at all times.
Review of Known or Possible Conflicts of Interest
Members of the Audit Committee will review all conflicts or possible conflicts of interest reported by Trustees. The president will review all conflicts or possible conflicts of interest reported by Officers or the Five Highest Compensated Employees. If the Audit Committee or president, as appropriate, determines a conflict or a possible conflict exists, the situation will be reviewed following the process described below. When conflicts are not approved as an exception, Trustees, Officers, and the Five Highest Compensated Employees must either remove themselves from the conflict or resign their position. Information disclosed shall be held in confidence by members of the Audit Committee and the Board of Trustees.
Approval of Exceptions
On rare occasions, trustee, officer, or the Five Highest Compensated Employee related business may supply the best services or goods and/or may provide the best price in the area. Such transactions may be ratified by a vote of the Board of Trustees providing:
- The relationship between the Trustee, Officer or Five Highest Compensated Employee and the supplier has been disclosed through the reporting system.
- The transaction has been reviewed by the Audit Committee or president, as appropriate, and a recommendation has been made to the Board of Trustees.
- The benefits to the College from trustee, officer, or five highest compensated employee related business and/or the prices paid for those benefits are measurably better than those that could be obtained from unrelated entities.
Interested Trustees may be counted in determining the presence of a quorum at the meeting of the Board of Trustees at which such transaction is considered; however, the Interested Trustee shall abstain from voting on this matter and shall not be present at the time of the vote.
Appendix to 22.214.171.124 - Conflict of Interest Annual Disclosure Statement and Certification
We, the members of the Board of Trustees of Ithaca College, recognize the importance of articulating standards in the way we exercise our trusteeship. By adopting this statement we exercise our trusteeship. By adopting this statement we acknowledge that trusteeship requires a code of behavior not usually expected of other citizens. By willingly and enthusiastically accepting the privilege of serving the public interest and this institution, we also accept the obligations and responsibilities that accompany our trusteeship.
This statement is intended to clarify our individual responsibilities, which we acknowledge to be distinct from, but complementary to, those of the board as a corporate entity. It shall serve to help individuals being considered for nomination to the board to decide whether they wish to accept election, to remind new and incumbent members of their obligations, and to encourage periodic review of ourselves and our board's performance.
Therefore, as trustees of Ithaca College, we each pledge to:
- participate in the appointment, support, and assessment of the president;
- counsel the chief executive as appropriate and offer support in the chief executive's relationships with groups or individuals on or off campus;
- remain knowledgeable about the institution's mission, purposes, goals, policies, educational offerings, strengths, and needs;
- serve the institution as a whole rather than any special interests(s);
- remain knowledgeable about trends in higher education and other institutions in our community, state, region, and nation;
- when called upon by the board, help interpret and explain to the administration and academic community the needs, interests, and concerns of the community at large in the course of helping to set institutional purposes, priorities, and policies;
- Help interpret and explain to state policy makers and others how the unique nature of an academic enterprise makes it distinct from other public agencies, including its essential commitment to academic freedom and its delicate internal system of shared governance. In a similar vein, we pledge to protect the institution's integrity and independence from unreasonable outside interference;
- assist the Institutional Advancement Committee and administration by implementing fund-raising strategies to the best of our ability through personal influence with other corporations, individuals, and foundations;
- make Ithaca a priority in charitable giving, and give an annual gift according to personal means, mindful of the need to support capital and annual giving programs as appropriate;
- prepare for and participate in all official board meetings and functions, including committee meetings and appropriate campus events;
- suggest agenda items periodically for board and committee meetings to ensure that significant policy-related matters are addressed;
- actively deliberate, discuss and debate board matters consistent with one's conscience and convictions, while supporting the majority decision on issues decided by the board;
- understand the institution's financial statements to help the board fulfill its fiduciary responsibility;
- serve in leadership positions or undertake special assignments willingly and enthusiastically when asked;
- maintain confidentiality of the board's deliberations and speak on behalf of the board or institution only when authorized to do so by the chairperson or the chairperson's designee;
- ensure that our communication with individual students, faculty, staff, or administrators is judicious and appropriate to our roles as trustees;
- assess clearly and critically any situation that may present a conflict of interest for the Board or the institution; inform the board of possible conflicts in a timely fashion for disposition by the Board as it may decide;
- establish and support board channels for the resolution of differences;
- suggest trustee nominees to the board who are individuals of achievement and distinction and who can make significant contributions to the work of the board and the progress of the institution;
- encourage periodic review of the board's performance and support peer assessment of the Board's performance as an example to all members of the academic community and to acknowledge that Board and presidential leadership are interdependent; and
- Bring a sense of humor to the board's deliberations.
We, the trustees of Ithaca College, thus commit ourselves individually and collectively to the highest possible standards of conduct. We acknowledge that each of us shares a profound obligation to exercise our best possible judgment as we face the often perplexing matters affecting the health and vitality of this institution we hold in trust for future generations. At the same time, we appreciate that trusteeship, like the presidency, is a distinctly human enterprise and a somewhat imperfect device.
We respect the judgments of others concerning our performance, because we recognize the need to see ourselves as others see us. As willing volunteers in perhaps the most noble of all forms of volunteerism in our participatory democracy, we individually pledge to help the board and Ithaca College be all they are capable of being.
All students attending the College and not expressly exempted from the payment thereof, shall pay such tuition and other fees at such times and in such a manner as may be fixed by the Board of Trustees. The board expressly reserves the power at any time without prior notice to make such increases and changes in the amount, time and manner of payment as it may deem necessary and proper.
No degree shall be conferred or certificate issued until all fees and other financial obligations to the College have been paid or satisfactorily arranged.
The chair of the Governance Committee will be responsible for initiating the process of annual election. If at the time of officer elections, the chair of the Governance Committee is an officer of the board, then the chairman of the board shall nominate another member of the Governance Committee to fulfill the board officer election responsibility. It is the responsibility of the chair of the Governance Committee or the designated alternate to review with an incumbent his/her desire for re-election.
The election of board officers will take place in executive session. The individuals under consideration as board officers will not be present for the session. During the executive session, the board will vote to ratify the election of the incumbents or alternatively determine whether an open election including new nominees should be conducted. The chairman and the vice chairman shall be elected for a term of one year.
126.96.36.199a Board Officer Nomination and Selection Procedures
Amended by the Board of Trustees February 2015
The Governance Committee will have responsibility for facilitating the process to be used in generating board chair and vice-chair nominations for consideration and final vote of the full board. The Governance Committee may elect to operate as a committee of the whole or a nomination sub-committee may be created under the direction of the Governance Committee to fulfill the tasks outlined in the nomination process. Every effort will be made to initiate the nomination process by December preceding the expiration of the current board chair and vice-chair terms. The election of board chair and vice-chair are two distinct processes. Being selected as vice-chair does not confer chair elect status.
- The committee will contact all board members to obtain feedback from trustees on the qualities needed for board leadership in the next three year period. The feedback will be used by the committee to develop a statement of essential criteria for a successful board chair. The statement will be called “A Portrait of the Next Chair of the Board of Ithaca College”.
- If, as a result of the above, there is agreement by the committee that a sitting Board Chair who is eligible for reelection meets the criteria he/she will be invited to stand for reelection. The Chair of the committee, shall, prior to the February Governance Committee meeting, ascertain from the Board Chair his/her willingness to continue in the position. In such case, the Committee shall, at its February meeting, resolve to recommend to the Board at its May meeting the reelection of the Board Chair. If the Board Chair is a member of the Governance Committee, or attends any Trustee Committee meetings, he or she shall withdraw during any portion of a meeting during which his/her name is under discussion.
- If a sitting Chair is not invited, or able to, stand for reelection, the committee chair shall initiate the remaining steps of the process.
- The committee will distribute “A Portrait of the Next Chair of the Board of Ithaca College” to all trustees who will be asked to consider nominations of individuals capable of fulfilling the expectations outlined in the document. The committee will follow-up distribution of the document with a telephone call to all members of the board to solicit nominations. A trustee may either self-nominate or nominate other trustees for consideration of Chair. During the conversation each trustee will be asked if nominated if he/she would be willing to serve. In addition, trustees will be asked who might be possible vice-chair candidates.
- Once all nominations are obtained the members of the committee will confirm the willingness of the nominated candidates to be considered. Upon completed confirmation, the committee will distribute the list of nominees and a series of questions for consideration to all trustees. The questions will include but not be limited to:
- Who meets the criteria outlined in “The Portrait of the Next Board Chair”?
- What are the strengths and weaknesses of each of the nominees?
- How would you rate the nominee(s) in the following areas:
- Availability (equivalent of one day/week)
- Available to periodically be on campus between board meetings
- Demonstrated leadership abilities
- Personality that will represent the College well
- The committee will propose the nominees from those meeting the criteria. The committee chair informs the president of the committee’s deliberations to enable the president the opportunity to provide feedback to the committee on the compatibility between the president and each of the nominees.
- The committee chair will communicate with the final list of nominees to confirm willingness to serve and to request a written self-reflection from the final nominees on their ability to fulfill the criteria identified.
- The committee will review the final list of nominees, board member feedback, and the self-reflection documents from each nominee. The committee votes to select its final nominee. A unanimous vote is desirable, but a majority vote will be required. The committee chair will vote to break a tie. The nominee will be informed that his/her name will be presented to the full board for election.
- Once the nominee for Chair is determined, the committee will review and discuss the names suggested by board members in Step 4 as possible nominees for Vice-Chair. The committee will also discuss whether nominees who were identified during the nominations process for Chair would be possible candidates for Vice-Chair. During this review period, the committee will also consult with the nominee for Chair-elect to obtain any feedback that would be helpful to the committee in reaching a final decision on the nominee for Vice-Chair. It is the ultimate responsibility of the committee to determine the nominee for Vice-Chair.
- The committee chair will inform all nominees who did not get selected.
- At the May Board meeting, the committee chair presents the committee’s nomination of the board chair and vice-chair to the full board in executive session, will review the process used to determine the nominees, answer questions regarding the nominees, and will invite competing nominations. The nominees and other candidates being recommended for board chair and vice chair shall be excused for this portion of the meeting.
- The full board votes to elect the next chair and vice-chair of the board from the final slate of nominees. The vote will be conducted in accordance with the board by-laws. The election of chair and vice-chair is effective as of June 1.
Amended by the Board of Trustees on October 10, 2014.
The following criteria serve as guiding principles to be used by the Governance Committee for nominations of individuals for the designation of honorary trustee:
- Track record of truly distinguished board service, with an exemplary level of engagement as a trustee. Widely recognized by fellow trustees as a leading contributor to the Board and to the College (in thoughts, time and contributions).
- Truly engaged with the College, beyond simply attendance at the regular board meetings.
- Demonstrated leadership, not only at a committee level but (whenever asked) through a superior and distinctive level of engagement and leadership in special efforts and activities (campaigns; building efforts; service on special or ad hoc committees; etc.).
- A true and effective ambassador for IC, beyond the reaches of campus life, proactively engaged in efforts to enhance outside awareness of the College, its brand and its key initiatives.
- Someone who, if given the honorary trustee recognition, can be reasonably expected to continue to be engaged through periodic attendance at College events, board meetings.
- In exceptional circumstances, the designation of honorary trustee may be awarded posthumously.
Recognition and Engagement of Honorary Trustees
- The College and the Board will be focused and intentional in its communications with honorary trustees, through written communication (personalized from time to time) and periodic meetings or phone calls (by President and board Chair from time to time but at least annually).
- When honorary trustees attend board meetings, the Chair or President should always introduce them and thank them for attending. While not voting members, the Chair would be wise to engage honorary trustees during discussion of issues where they may have particularly relevant insights.
- As needs arise, honorary trustees should be selected to serve on ad hoc committees (campaign committees, search committees, or other efforts where their experience and insights can be leveraged).
- Honorary trustees will be invited to key college events, and where appropriate they will be introduced and recognized as in attendance, and attending active trustees and college leaders will engage with them during such activities.
- A current trustee will be appointed by the Board Chair to serve as a point of contact/mentor for the honorary trustee. Specific expectations of the current trustee for interactions with the assigned honorary trustee include periodic conversations with the honorary trustee to keep them apprised of key issues or developments at the College (board-related generally).
- The Governance Committee should establish an annual discipline of assessing the Board's and the College's effectiveness in dealing with honorary trustees, including an annual reaching out to each honorary trustee for input on the function, level of communication, role, etc. (personal -- not an electronic survey).
Amended by the Full Board on October 10, 2014
This committee shall be called the Audit Committee of the Board of Trustees of Ithaca College.
The Audit Committee will be appointed by the chairman of the Board of Trustees. The Audit Committee will be composed of up to five board members, independent of management. The chair of the Audit Committee chair shall not serve simultaneously as the chair of the Investment Committee or the chair of the Finance Committee.
Functions and Responsibilities
The Audit Committee is a standing committee of the Board of Trustees. The Audit Committee’s principal responsibilities are to provide oversight to ensure that appropriate accounting policies and internal controls are established and followed, and that the College issues financial statements and reports in a timely manner in accordance with the College’s regulatory obligations. The Audit Committee’s other responsibilities include the following:
- Recommending to the Board of Trustees the selection and retention of the independent public accountants for the College.
- Recommending to the Board of Trustees, when the Audit Committee deems it advisable, that the independent public accountants engage in specific studies and reports regarding auditing related issues, accounting procedures or other matters.
- Reviewing with the independent public accountants annual financial statements, including any adjustments to those statements recommended by them, and any significant issues that arose in connection with the preparation of those financial statements.
- In consultation with the independent public accountants and management, reviewing the adequacy of financial disclosures in the audited financial statements.
- Reviewing, as appropriate and in consultation with the independent public accountants, accounting policies and procedures applicable to the College as well as any management responses to auditor comments relating to those policies and procedures.
- In consultation and coordination with the Vice President and General Counsel, investigating--when the Audit Committee deems it necessary--potential, actual or perceived improprieties in College operations.
- Meeting at least annually with the Vice President for Finance and Administration, the Vice President and General Counsel and with the independent public accountants to discuss any issues arising from the Audit Committee’s responsibilities.
- Meeting at least annually with the independent public accountants (outside the presence of management) to discuss any issues arising from the Audit Committee’s responsibilities.
- Meeting at least annually with management (outside the presence of the independent public accountants) to discuss management’s evaluation of the work performed by the independent public accountants.
- Obtaining from management and external advisors reports relating to accounting, tax, regulatory, governance, internal controls and other business matters.
- Recommending, reviewing and amending when required a Code of Ethical Conduct and ensuring that management has established a system to enforce the code for all College personnel.
- Obtaining, when the Audit Committee deems it necessary, the advice of outside consultants and professionals (including but not limited to retention of special legal counsel) to advise the Audit Committee on matters within the scope of its charge.
The secretary to the Board of Trustees shall be responsible for the preparation of minutes for each committee meeting, distribution of the minutes to committee members, and for ensuring that committee meeting minutes are retained on a permanent basis.
Amended May 16, 2015
Effective April 1, 1997 the Ithaca College Endowment Fund investment structure changed from a global balanced philosophy, where individual management firms had responsibility and discretion within College guidelines to determine asset allocation; to a strategic philosophy, whereby individual management firms have responsibility for managing specific purpose portfolios within the College's Endowment Fund structure. The College now assumes responsibility for the overall asset allocation and the periodic rebalancing, as necessary.
Beginning modestly, the Ithaca College Endowment Fund has enjoyed significant growth. The assets support an ever broadening array of activities that assure the College's future mission. The Trustees, ever mindful of their stewardship, have caused this statement to be prepared as a policy framework for a disciplined process that seeks to add value and minimize risk for the College and those who benefit from these assets. The Investment Committee of the Board of Trustees is charged with the responsibility of overseeing the management of the Endowment Fund assets, as well as the ongoing review and updating of these policy guidelines.
II. Investment Objectives
The Endowment Funds are permanent funds with disciplined longer-term investment objectives and strategies that will accommodate relevant, reasonable, or probable events.
Careful management of the assets is designed to ensure a total return (income plus capital change) necessary to preserve and enhance (in real dollar terms) the principal of the funds and at the same time, provide a dependable source of support for current College operations and programs.
Spending for current operations and programs should not exceed 6% of a 20 quarter moving average of the Fund's total market value.
III. Diversification of Investments
In recognition of the prudence required of fiduciaries, reasonable diversification will be sought where possible. Experience has shown financial markets and inflation rates are cyclical and therefore, control of volatility will be achieved through diversification of asset classes and selection of managers of diverse styles.
IV. Asset Allocation (updated: May 2015)
Since the selection and weighting of asset classes is the primary determinant of investment return and volatility, asset choice will be carefully considered by the College in accordance with a systematic allocation process derived from consultation with their advisors. Approved asset classes and policy target ranges are noted below:
|Asset Class||% Target Allocation||% Range||Index Benchmark|
|Global Equity||45.0||35 - 55||MSCI All Country World Index|
|Global Private Equity||7.5||0 - 15||Ithaca College Private Equity Index|
|Flexible Capital||22.5||15 - 30||HFRI Fund-of-Funds Composite Index, HFRI Fund Weighted Composite Index|
|Fixed Income||10.0||5 - 15||Fixed Income Composite Index|
|Real Estate||10.0||5 - 15||NCREIF Property Index, FTSE EPRA/NAREIT Developed Index|
|Inflation Hedging*||5.0||0 - 10||Inflation Hedging Composite Index|
|Cash Equiv. and ST||0.0||0 - 5||Citigroup Treasury Bill 3 Month Index|
*Includes TIPS, commodities and natural resources.
The fund is to be structured for long term growth with a broadly diversified mix of asset classes and styles. The international equity and global fixed income segments are intended to reduce volatility and the fund's reliance on domestic financial markets. The real asset portion of the fund is expected to earn high real rates of return with a very low correlation to more traditional asset classes.
The target for the actual asset mix will be reviewed by the Investment Committee annually, or more frequently as necessary. As part of this process, a rebalancing procedure within the policy framework of the adopted asset allocation model has been established. More specifically, the quarterly review guideline will be:
- Changes in the allocation to the asset class segments or sub segments will be made at any time the quarterly weighting is outside the established weight range as defined on the asset allocation model; or
- Changes in the allocations may be considered any time a weighting varies from the current target weighting.
The Investment Committee will review the segment allocations at its regularly scheduled meetings and any changes in the allocations will be made after the meetings. In the case of major market movements resulting in variations as provided under (1) above, rebalancing of the segment allocations may be made prior to the quarterly review upon approval of the Chair of the Investment Committee and the Vice President for Finance and Administration. While in the normal course of events, every effort will be made to keep the segment allocations within the established ranges, major market movements and the lack of short term liquidity associated with some segments may result in substantial short term variances from established target ranges. In such circumstances, the committee will meet as soon as practicable to review whether such variations should be corrected as soon as possible or whether other actions would be more appropriate in the circumstances.
New monies received by the College for addition to the Endowment Fund will be added to the investment pool, when received, and distributed to the managers based on the approved target allocations; adjusted for any rebalancing necessary within the policy framework based on the actual asset mix percentages.
V. Spending Guideline
Annual spending for pooled investments is established by the Administration between a minimum of 4% and a maximum of 6% of the twenty most recent quarterly pooled unit market values, prior to the beginning of each fiscal year. The annual spending percentage, subject to prior range limitations, is based on prior year's spending plus a reasonable increase relative to inflation and rate of increase for tuition at the College.
The administration has the authority to determine annual spending for new fund additions to the pooled investments subject to the limitation of 6% of the current market until they have fully matured in the twenty quarter computation.
VI. Investment Management
Investment managers will be appointed following a systematic search for those with demonstrated quality in the style desired. In order to maintain compliance with the New York Prudent Management of Institutional Funds Act (NYPMIFA) investment managers shall be selected based on competence, experience, past performance, and proposed compensation, and not on any business or personal relationships between the investment manager and board members or other insiders. Additionally, any investment management contract with a third party shall be terminable at will, or no greater than 60 days, upon written notice by the College. To optimize access to such managers, while minimizing management fees and transaction costs assessed to the College, no-load mutual funds and pooled funds may be considered together with separate account management. Managers are given discretion to manage funds entrusted in accordance with the style for which they are employed provided they comply with the restrictions and limitations as may be determined by the College from time to time. (Article X and XI)
VII. Evaluation of Managers
The following criteria will be used to evaluate manager performance.
A. Performance Objectives for Active Management
- Equity manager(s)/fund(s) will be expected to achieve an annualized total rate of return over a five year period which exceeds the appropriate market index rate of return, net of costs and fees, by the following amounts:
- Large Cap Equity: 0.50%
- Small/Mid Cap Equity: 1.00%
- International Equity: 1.00%
- Fixed income managers will be expected to exceed appropriate market indices by 0.50%, net of costs and fees. Balanced managers will be expected to attain a blended objective reflective of their asset mix. Total return is defined as dividend or interest income plus realized and unrealized capital appreciation or depreciation at fair market value.
- The manager(s)/fund(s) will also be expected to consistently achieve a total rate of return which is equal or above the median return in a universe of peers with comparable investment styles or portfolio objectives.
B. Investment Style
The managers/fund(s) will maintain a portfolio for the College characterized by their respective traditional management styles and, if a change in such style is contemplated, the manager is required to make advance written notification to the College.
C. Change in Objectives or Asset Allocation
A change in objectives or asset allocation strategy may require that funds be transferred between asset classes, to new asset classes, or among styles within asset classes. These changes may result in increases, decreases or elimination of funds under management by a specific manager.
VIII. Performance Measurement
Measuring manager progress against policy objectives and for consistency in measuring performance against the total return objectives, performance will be reflected net of management fees and transaction costs.
IX. Proxy Voting
Proxy voting on equity securities for separately managed funds will be the responsibility of the Manager in accordance with this Statement of Investment Objectives, Goals and Policy Guidelines and its amendments. Proxy voting on any commingled funds will be the responsibility of the Vice President for Finance and Administration.
X. Investment Consultant
The College may retain the services of an independent investment consultant for the purpose of assisting the College in developing and then attaining the objectives of the College. The consultant will assist in establishing objectives offering alternative models of asset allocation, identifying appropriate managers or funds, producing timely quarterly reports that monitor performance of individual managers against similar managers as well as performance of the entire Fund against its objectives and against other appropriate indices. The consultant will also provide consultation on revisions and modifications as appropriate.
XI. Limitations and Restrictions
Not more than 10% of a manager's portfolio may be invested in the securities of any one issuer, with the exception of the U.S. Government or its agencies and other sovereign government issuers. Investments rated below BBB by Standard & Poors Corporation or a comparable nationally recognized rating service are limited to not more than 15% at cost, of the value of the fixed income assets, and with respect to each issuer, 3%, at cost. Unrated securities considered by the manager to be within the quality guidelines of the account may be purchased. In the case of a split rating, the higher rating shall apply. If a downgrade causes a violation of these guidelines, such downgraded security may be held at the manager's discretion.
The following categories of investments are not permitted for investment without Investment Committee approval: (i) Private placements or restricted securities, other than Rule 144A Securities - except as may be positioned in a commingled fund which does not specifically emphasize private placements; (ii) Commodities - including gold, precious gems or commodity futures; (iii) Conditional sales contracts; (iv) Uncovered options; (v) Short sales or margin purchases; (vi) Transferable certificates of participation in business trusts and limited partnerships; (vii) Use of derivatives or leverage (see Section XII); (viii) Securities of the investment managers or their respective parents, subsidiaries or affiliates; (ix) Investments in companies doing business not in accordance with the policy statements of the College; and (x) Securities in violation of State law.
XII. Use of Derivatives
When prudently used, the College recognizes that derivative instruments and strategies can be an important element of general portfolio management. Derivatives offer applications to investment management firms that are effective alternatives to trading physical securities, provided firms have the technical knowledge of the market factors, the quantitative skills to analyze the securities over a range of scenarios and the ability to determine reasonable valuation before purchasing.
Portfolio management agreements or manager guidelines must explicitly authorize the use of derivatives. Except in approved special equity strategies, derivative instruments may not be used to effect a portfolio beyond the value of the underlying assets (leverage).
Any derivative strategies must be comparable to strategies historically used by the manager in managing underlying physical assets and the manager is responsible for keeping the College informed on current internal policies regarding the use of derivatives. If any change in the firm's policies is being considered, the Investment Committee through the Vice President for Finance and Administration is to be notified, in writing, sufficiently in advance to consider the effect of the change and if appropriate, to terminate the portfolio prior to the change taking effect.
Fixed Income Managers
Derivative based strategies may not subject the College's portfolio to greater variability (e.g., IOs, POs, inverse floaters, etc.) than would be typical of a physical asset portfolio of the same character.
Futures and options contracts are restricted to actively traded liquid instruments on major exchanges, or to over-the-counter options or forward contracts executed with major dealers. All futures, options or forward contracts must be offset, in full, by underlying asset positions.
A master custodian bank will be employed in order to control the flow of funds, provide for proper accounting of investment transactions and the short-term investment of residual cash.
XIV. Investment Manager Communication
Where the Fund is separately managed, the manager is responsible for free and open communication with the Investment Committee through the Vice President for Finance and Administration in all significant matters pertaining to investment policies and management of Fund assets, including, but not limited to: (i) Major changes in the investment manager's investment outlook, investment strategy and portfolio structure; (ii) Any significant changes in the ownership, organizational structure, financial condition or senior personnel staffing of the investment manager's organization; and (iii) quarterly transactions, evaluation and performance reports.
XV. Reporting and Evaluation
As the Committee of the Board is charged with overseeing the management of the assets, the Investment Committee will endeavor to meet with the consultant every quarter. Furthermore, the consultant will meet with all managers at least once per twelve month period or more frequently if necessary, to review and discuss performance results, asset allocation, economic outlook/valuations, organizational changes and other pertinent information or matters. The Investment Committee will meet with fund managers as either they or the consultant deem necessary. Special meetings of the Investment Committee may be called by the Chair as necessary. All materials to be used during such meetings shall be submitted by the advisors at least five business days in advance of the meeting.
Quarterly evaluations of Endowment assets under advisement or management shall be supplied by the custodian, consultant and investment managers, in the form as may be requested by the Investment Committee to include market valuations, industry segmentations, transaction registers, cash statements, and similar reports. The report of fixed-income and equities shall show inventories at cost, purchase date, market value and share or unit values at cost and market values.
All materials required of the manager(s) and custodian shall also be provided to the consultant. In addition, the manager(s) and the custodian shall provide evidence of liability and fiduciary insurance and have its employees bonded unless otherwise exempted by law or governmental regulation.
The Investment Committee will report to the Board of Trustees at their regular meetings on investment performance, asset allocation, strategic and manager issues or concerns, as well as actions taken regarding manager changes or recommendations regarding strategic issues on asset allocation or diversification.
XVI. Conflict of Interest
It is the policy of the Trustees to avoid conflicts of interest in its operations and in the selection of investment managers or funds. Therefore, College administrative officers or Trustees shall disclose any financial or business relationship with any manager or fund being considered. Similarly, the independent investment consultant retained by the College, or any entity, in which such consultant may have an interest, shall disclose any financial or business relationship with any investment manager providing services to the College or any fund in which the College has an investment.
All new monies received by investment manager(s) after the adoption of this Statement of Policy shall conform to the Statement. To the extent that Fund assets are not currently managed in accordance with this Statement, the investment manager shall conform in all respects to this Statement within 60 days of its receipt hereof.
Adopted by the Board of Trustees on October 10, 2014
Section 1: General Philosophy
This policy focuses on procedures the College follows to authorize Major Capital Projects, and the steps it takes to ensure that the issuance of new Long-Term Debt used to acquire, improve or construct Major Capital Projects are both strategic and fiscally responsible. Debt is one vehicle the College may utilize to finance its capital acquisitions. Through effective utilization and management of debt, the College seeks to balance the opportunities to obtain reasonably structured and priced funding with the inherent risk of adding debt to its balance sheet. Additionally the College may incur debt to preserve cash or other assets on its balance sheet if in the long term, a higher return on the preserved assets is expected when compared with the associated debt service of a particular borrowing.
Therefore, this policy defines the following:
- The intended use for Long-Term Debt;
- Procedures the College will take to ensure the issuance of new debt is both strategic and fiscally responsible;
- Procedures for authorizing additional borrowing; and
- Procedures for authorizing Major Capital Projects.
Debt associated with current operations such as a line of credit, and other short-term debt incurred in the normal course of operations do not fall within the scope of this policy.
Section 2: Definitions
Long-Term Debt (LTD) is defined as debt which has a maturity longer than one year and as long 30 years. LTD is most commonly in the form of tax-exempt revenue bonds, with associated maturity limitations established by the Internal Revenue Code.
Long-Term Lease is defined as debt, which has a maturity or term greater than ten years. [not used]
Bridge Financing (of any term) is primarily used as a method to provide interim capital funding during periods when an identified replacement source of funding (such as contributions, grants or another debt vehicle) will trail capital spending on the related project(s). The College's Bridge Financing will be structured so that such debt may be prepaid in any amount (preferably without any form of penalty) at least every 12 months.
Major Capital Projects that fall within the scope of this policy include capital projects with an expected life of at least 10 years which exceed an estimated total cost of 5% of Unrestricted Operating Revenues, as reported on the College's most recent audited financial statements.
Potential Debt Issues arise whenever the College decides to proceed with capital projects in excess of 5% of Unrestricted Operating Revenues for which 0 % of the anticipated project cost is not on deposit in an institutional fund or funds designated for the identified project.
Capital Funding represents the various methods that the College employs to finance Major Capital Projects. Capital funding can be in one, or a combination of two or more of the following four forms:
- Long-Term Debt;
- Bridge Financing;
- Gifts; and
- Utilization of existing resources.
Section 3: Capital Funding Options
As Administration and the Board of Trustees consider Major Capital Projects, they will evaluate all available capital funding options. Currently available contributions would typically be the first source used to fund Major Capital Projects, followed by Bridge Financing, LTD, and finally, existing resources. Additional Long-Term Debt shall be incurred only if the current and projected ratios are within acceptable ranges for the Key Financial Measures listed in Section 5.5, and all existing and proposed bond covenants can be maintained.
Section 4: Capital Project Approval
Major Capital Projects must be approved in advance by the Board of Trustees regardless of the funding source.
The following expenditure approval guidelines should be followed for all Major Capital Projects:
- Architectural plans will not proceed to the schematic design level until or unless:
- It is demonstrated that the College has at least 85% of the expected non-debt funding proceeds on deposit in a fund or funds designated for the identified project, and
- The College expects to be able to fulfill all existing and anticipated bond covenants while remaining within acceptable Key Financial Measure ranges for any additional Long-Term Debt to be issued to fund the project.
- Construction will not begin until:
- The College has at least 85% of the expected non-debt funding proceeds on deposit in a fund or funds designated for the identified project, and
- The College has cash on deposit and/or has received gift intentions with anticipated payment start dates no later than one year from the start of construction for another 50% of the expected non-debt funding proceeds, and
- The College confirms it can fulfill all existing and anticipated debt covenants and remain within acceptable Key Financial Measure ranges if additional Long-Term Debt were to be issued in an amount equal to 50% of the total anticipated project cost less the sum of contributed project cash currently on deposit and irrevocable project gift intentions expected to be received within one year of the start of construction.
The items listed above are general guidelines. The ultimate decision regarding the choice of appropriate capital funding sources and the authorization to proceed with the construction of Major Capital Projects rests with the Board of Trustees, with input from Administration.
Section 5: Evaluation of Debt Capacity
The following is intended to provide basic guidelines for evaluating the viability of Major Capital Projects, together with the issuance of any additional Long-Term Debt:
- Linkage to Strategic Plan and/or Mission - Any additional Long-Term Debt, by definition, will result in additional financial risk for the College. Therefore the returns or rewards of any Major Capital Project must at least offset the additional assumed risks. The initial test to see if an envisioned Major Capital Project produces a net benefit is to determine if the project is congruent with the College's strategic plan and/or mission. Projects that do not meet this test cannot proceed.
- Revenue Producing Projects - While Long-Term Debt does not have to be associated with a revenue producing asset, the self-supporting nature of any project will be strongly considered when evaluating the merits of issuing Long-Term Debt for a Major Capital Project.
- Existing Debt Covenants Test - The added burden of any new Long-Term Debt must be tested against debt covenants associated with the College's existing debt. In applying this test, all anticipated increases in revenues, expenses, assets, liabilities, and net assets should be incorporated into a forecast model that provides relevant data to test existing debt covenants. If the results of this exercise indicate that the College would fail to meet the existing debt covenants, then the additional Long-Term Debt option cannot be considered, or the amount that has been proposed must be reduced.
- Anticipated Debt Covenants Test - If the envisioned new debt level satisfies current debt covenants, it then must be tested against anticipated debt covenants and projected financial results that are reasonably expected to exist upon the successful borrowing of additional Long-Term Debt. In developing such a test, it is understood that it can only represent an estimate of what the actual covenants will be upon closure of a bond issue.
- Key Financial Measures - To ensure the College operates within appropriate financial bounds and maintains an adequate level of flexibility that might be necessary to respond to major market shifts or competitive disruptions, the following three Key Financial Measures will be used as the basis for performing a financial evaluation for all Potential Debt Issues:
Key Indicator #1: Debt Burden on Operations
- Ratio: Actual Annual Debt Service
- Measures: Debt service burden on the annual operation budget
- Target Range: 6.0% to 8.0%
- Ratio Calculation: Annual Debt Service / Annual Operating Expenses
Key Indicator #2: Debt Service Coverage from Operations
- Ratio: Maximum Annual Debt Service Coverage
- Measures: Ability to make debt service payments from operating funds
- Target Range: 2.5:1 to 4.0:1
- Ratio Calculation: Operating surplus (deficit) minus gifts + interest expense + depreciation / principal and interest payments
Key Indicator #3: Liquidity
- Ratio: Expendable Resources to Debt
- Measures: Coverage of direct debt by the most liquid financial resources
- Target Range: .75x to 2.00 x
- Reference: Ratio Calculation: Total Unrestricted Net Assets plus Temporarily Restricted net Assets less Term Endowments less Net Investment in Plant/LTD (Net Investment in Plant = PP&E plus Funds held by trustee under debt agreements less LTD related to PP&E)
Section 6: Use of Bridge Financing
Bridge Financing will not be incurred for more than 50% of the cost of the related project, and will not exceed 10% of the related unpaid gift intentions currently recorded and expected to be paid within 5 years of the starting construction date for the related project. Any proposed Bridge Financing must be evaluated in relation to the College's debt capacity, per Section 5 above.
Section 7: Use of Variable Rate Debt
Either fixed or variable rate debt may be the most appropriate choice for a new capital project. The choice will be affected by a variety of conditions, including, but not limited to: current market rates for fixed and variable rate debt; the terms of existing debt outstanding; the likelihood of prepayment; the nature of the College's investment portfolio; and the specific characteristics of the issue being considered. Both fixed and variable rate debt issues have specific benefits and risks that should be considered. The College will not initially incur variable rate debt for any purpose or duration which exceeds the most recent three year average of 100% of cash and cash equivalents (excluding gifts held as cash) as reported on its audited financial statements.
Section 8: Approval of Debt Transactions
The Issuance of Additional Debt - All proposed issuance of additional Long-Term Debt covered by this policy must be initiated by Administration and approved by the Board of Trustees via a recommendation by the Committee on Finance. Prior to proceeding with a bona fide effort to utilize additional Long-Term Debt, Administration must apprise the Board of Trustees of all key elements of the transaction which includes, but is not limited to: a) projected principal; b) term; c) projected interest rates; d) repayment terms; e) projected security features, if any; and f) source and method of amortization. All proposed debt transactions should contain an accompanying detailed financial analysis of the balance sheet impact (cost of major capital assets and envisioned additional Long-Term Debt) and a debt capacity calculation for presentation to the Committee on Finance and the Board of Trustees. The debt capacity calculation should address both existing and proposed debt covenants, as well as the Key Financial Measures listed in Section 5.5.
Additionally, prior to issuance of new Long-Term Debt or restructuring of existing Long-Term Debt, the College will consult with its external auditors to confirm proper accounting and any potential impact to the College's financial statements.
Derivatives - Any decision to enter into any derivatives must be recommended by the Finance Committee after a full review of all advantages and disadvantages with all potential risks identified and fully evaluated. Following a recommendation by the Finance Committee, final approval must be provided by the full Board of Trustees. Given the risks and complexity associated with derivative products the College has created a separate Swap Policy to provide guidelines for the use of derivative products.
Section 9: Periodic Review
This Debt and Capital Structure Policies and Guidelines will be reviewed by the Finance Committee of the Board of Trustees, at least every three years, and any necessary amendments will be adopted within six months of such review by the authorization of the full Board of Trustees.
Adopted by the Board of Trustees on October 10, 2014.
This Master Swap Policy is designed to provide procedural direction to Ithaca College ("the College") regarding the utilization, execution, and management of interest rate swaps and related instruments (collectively, "interest rate swaps").
Interest rate swaps can be effective interest rate management tools in helping the College to achieve its financial and policy objectives. However, the College recognizes that a swap policy is important to minimize risks and maximize the benefits of an interest rate swap program. While adherence to these guidelines is required generally, developments in the financial markets, College circumstances and/or objectives, or other unforeseen events may produce situations not adequately anticipated by this Policy. In these cases, the College will have the flexibility to deviate from these guidelines provided College Board of Trustees authorization is obtained prior to taking any action that is, or could be reasonably considered, inconsistent with these guidelines. Periodically the College, together with its advisors and counsel, will review the Policy and shall make modifications as appropriate due to changes in the business environment or market conditions.
These guidelines are not intended to govern other instruments or transactions that the College or its departments may consider, including but not limited to, currency, fuel, power, or other energy-related derivatives. Failure to comply in any manner with this policy shall not result in any liability on the part of the College to any party.
II. Authority and Oversight
The College's Vice-President for Finance and Administration together with other College staff as designated ("the College's Staff") shall be responsible for interest rate swap activities. In addition, appropriate personnel from any related College departments or enterprises, shall be consulted in the evaluation of and as appropriate, the on-going management of any interest rate swaps. The College may utilize the services of its swap advisor or legal counsel for the evaluation, execution, and on-going risk management and reporting requirements.
Before entering into an interest rate swap, the College will confirm with its legal counsel, including the College Attorney, that it has the legal authority to enter into such interest rate swap. In addition, if the interest rate swap will be related to existing or anticipated obligations of the College, the College will determine whether an interest rate swap is permitted under the legal documents pertaining to such obligations.
Additionally, prior to entering into an interest rate swap, the College will consult with its external auditors to confirm proper accounting of the proposed swap and any potential impact to the College's financial statements.
III. Interest Rate Swap Utilization
The College may utilize interest rate swaps to better manage its interest rate based assets and liabilities and to the extent utilized, interest rate swaps should be considered in the context of the College's overall asset and liability management efforts. The College shall not utilize interest rate swaps for speculative purposes.
A. Rationales for Utilization
- Reduce exposure to changes in interest rates on a particular transaction or portfolio of financial transactions.
- Achieve lower net cost of borrowing with respect to the College's debt obligations
- Achieve a benefit not otherwise available to the College.
- Optimization of the College's capital structure including modification of the timing and amounts of scheduled debt service payments.
- Improve asset and liability matching.
- Achieve optimal fixed rate versus variable rate debt allocations.
- Better position the College to respond to changing market or other circumstances.
- Manage the relationship between risk and reward with respect to the College's debt obligations.
- Manage exposure to changing markets in advance of anticipated bond issuances by locking in borrowing costs (through the use of forward hedging instruments).
B. Permitted Instruments
The College may utilize the following financial products on a current, or forward basis, after identifying the objectives to be realized and assessing the attendant risks.
- Interest rate swaps, including (i) pay fixed/receive floating swaps (fixed rate swaps), (ii) receive floating/pay fixed swaps (floating rate swaps) and (iii) pay floating/receive floating swaps (basis swaps). Swaps may include option features, such as for the extension, cancellation, or index conversion of the swap.
- Interest rate caps, floors, and collars.
- Stand-alone options to enter into swaps (swaptions) on a particular date, series of dates, or during a particular period of time in the future.
IV. Evaluation of Proposed Transactions
The College's Staff shall undertake an evaluation of any proposed transaction. This will include, but not be limited to, consideration of the following:
- Assessment of all inherent risks of the transaction including, but not limited to those outlined below (see Interest Rate Swap Risks)
- Alternative financing options and a comprehensive evaluation of the potential risks and expected benefits of the interest rate swap relative to such other options.
- Security and source of payments, both scheduled and termination, and the integration of the swap into the College's debt program.
- Procurement process and the suitability of the contemplated counterparties to the swap, taking into account any existing exposure to such counterparties.
- Impact on College's credit and liquidity profile and how other financial arrangements, existing or expected, may be impacted by the swap.
- Analysis of impact on the College's net variable rate interest exposure from the contemplated transaction and any potential budgetary impact.
- Cost and availability of on-going resources for the effective operations and risk management of the swap.
- Tax, accounting, or other compliance requirements relative to other options.
- If the transaction includes option components, analysis of circumstances under which the option will likely, or not likely, be exercised and the consequences of each outcome.
- Current and potential future counterparty credit risk exposure
V. Interest Rate Swap Risks
Interest rate swaps may involve several risks of varying degrees, including the following:
- Counterparty Risk - The risk of nonperformance resulting in a payment or other default on a swap by the College's counterparty. If the swap is terminated prior to its scheduled final cash flow date and the College's swap position has increased in value, the College will be owed a termination amount and therefore will have credit exposure to its Counterparty for collection of any such amount.
- Termination/Replacement Risk - The risk that an interest rate swap agreement must be terminated prior to its stated final cash flow date and that the College cannot obtain a replacement transaction with substantially similar terms, including because of deterioration in the College's own credit. In such a circumstance, the College could owe, or be owed, a termination payment and may not be able to effect an assignment of the transaction or enter into a new transaction with substantially similar terms that would preserve the College's economic position.
- Collateral Posting Risk - The risk that the College will be required to secure its payment obligations under the swap. Posted collateral would not be available for the College's expenditure or reserve balance needs, potentially adversely impacting credit ratings and overall liquidity and budgetary efforts.
- Basis Risk - The risk that the payments received (from a floating rate swap or asset) do not match, and in particular are insufficient, to pay the amounts due (on a floating rate swap or liability). In the context of floating rate bonds combined with a fixed rate swap, the risk is experiencing prolonged periods of larger than expected discrepancies between the rate paid by the College to the holders of its underlying bonds and the rate received on the swap over the same period of time (e.g., a tax-exempt variable rate issue paying bondholders an average of 68% of LIBOR while the College receives only 65% of LIBOR pursuant to the associated swap.)
- Tax-Exemption Risk - Related to basis risk, tax-exemption risk is generally the risk of a reduction or elimination in the benefits of tax exemption for municipal bonds (e.g., a reduction in the marginal tax rate) which event would increase the College's tax-exempt floating rate borrowing cost without an offsetting increase in swap receipts.
- Liquidity / Remarketing Risk - In connection with a swap strategy which includes issuance of floating rate bonds that, absent the swap strategy would have been issued as fixed rate bonds, the risk that the College cannot secure a cost-effective renewal of a letter or line of credit or suffers a failed auction or remarketing with respect to the floating-rate bonds.
Before proceeding with a swap transaction, the College must reasonably conclude that the expected benefits of the transaction outweigh the expected risks, that the risks are within acceptable levels, and that the contemplated transaction does not impose risks that threaten the College's ability to perform its core functions. The transaction must be reasonable in relation to the College's overall financial condition and capitalization.
The College shall, with its advisors and legal counsel, structure swap transactions with terms and provisions that will help mitigate such risks to the extent practicable and cost-effective. The College shall have a plan for the on-going monitoring and risk management of swap transactions.
VI. Interest Rate Swap Structuring and Execution
Swaps may be procured via a competitive process or through negotiation with one or more prospective counterparties. The College's Staff will determine on a case-by-case basis which approach best addresses the College's long-term financial objectives. Regardless of the method of procurement, the College shall obtain a finding from a qualified and independent firm that the terms and conditions of any transaction entered into reflect a fair market value of such transaction as of the date of its execution.
A. Eligible Counterparties
The College will do business only with qualified swap counterparties. Qualified counterparties are institutions whose long-term credit rating, or whose obligations are guaranteed by a financial institution whose long-term credit rating, are in the single "A"category or higher at the time the swap is executed that have a demonstrated record of successfully executing swap transactions. The College will structure interest rate swap agreements to protect itself from credit deterioration of counterparties, including the use of ratings-based termination events, credit support annexes or other forms of credit enhancement. Such protection shall include any terms and conditions which the College deems necessary or appropriate to protect its interests.
B. Term and Notional Amount of Swap Agreement
The College shall determine the appropriate term and size for an interest rate swap agreement on a case-by-case basis. In connection with the issuance or carrying of bonds, the outstanding notional amount of a swap agreement should relate to the amortization of the related existing or anticipated debt of the College. While entering into a swap with a term less than the associated bonds may be appropriate, if the intent is to "rollover" the swap, the College will be subject to the uncertainties of entering into a new swap at then prevailing market conditions.
C. Swap Documentation
In connection with each interest rate swap, the College must receive a legal opinion acceptable to the market to the effect that the interest rate swap is a legal, valid and binding obligation of the College. Such opinion must set forth the statutory and/or other provisions that grant the College the capacity and authority to enter into the interest rate swap agreement.
Unless otherwise recommended by the College's Staff and approved by the College Board of Trustees, the College will use swap documentation based on published ISDA standards, including the Master Agreement, Schedule to the Master Agreement, Credit Support Annex, and Confirmation. The College may modify these standard forms and use additional documentation as, on the advice of counsel and/or its other advisors, it deems necessary and appropriate.
Subject to the provisions contained herein, the College's swap documentation and terms should include the following:
- Appropriately limited definitions of Specified Entity, Specified Transactions, and Specified Indebtedness.
- Downgrade provisions triggering termination that in no event shall be worse than those relating to the counterparty.
- Governing law for swaps will be New York State.
- The right for the College to optionally terminate the swap at any time (at the then market value), but shall not provide this right to the College's counterparty, unless specifically structured to provide the counterparty with cancellation rights.
- A Credit Support Annex which requires the counterparty to post collateral if rated below the double "AA"category by either S&P or Moody's. Threshold amounts will be determined on a case-by-case basis but in all cases require a threshold of $0 for entities rated at or below "BBB" by S&P or "Baa1" by Moody's. If a counterparty has more than one rating, the lowest rating will govern for purposes of calculating the permitted threshold.
- If the provisions of the Credit Support Annex are symmetrical, the College will be required to post collateral under the same terms as the College's counterparty. The College shall explore the availability and cost-effectiveness of asymmetrical threshold provisions and/or forms of credit enhancement to secure its swap payment obligations to minimize the College's collateral posting risk.
- Acceptable security types for collateral purposes shall be limited to those rated "AAA" and otherwise consistent with the College's investment program. Valuation levels will take into account the term and liquidity of the investment as well as the valuation frequency. The market value of the collateral shall be determined no less frequently than weekly.
VII. Counterparty Credit Exposure
The College will manage its counterparty credit exposure (i.e., amounts which would become due to the College if the swaps with a particular counterparty were to terminate early pursuant to a default or other similar event) through diversification and active trade management. In order to measure the College's exposure, the College shall periodically calculate and review the current market valuation of all outstanding swaps, subtotaled by counterparty and by security and source of payment (as applicable). In addition, for each counterparty the College will review the then current long-term credit ratings and the ratings outlook, including the date of the last rating update. The calculation of termination exposure per counterparty will be on a net basis by taking into consideration multiple transactions, some of which may offset the overall exposure to the College.
In addition, the College shall consider the impact of interest rate volatility on the College's swap portfolio. The purpose of such consideration is to assess the impact of a significant change in interest rates on the College's swap portfolio. For example, volatility exposure could be calculated assuming (i) an upward shift of 100 basis points in the yield curve and (ii) a downward shift of 100 basis points in the yield curve.
Example of Counterparty Credit Exposure Information (Illustration Purposes Only)
|Outlook||Market Value of Transactions||Volatility Exposures Market Value|
VolExp(Up) $4 million
VolExp(Down) -$1 million
A. Exposure Review of Existing Swaps/
While collateralization reduces credit risk, collateralization introduces other risks, principally legal and operational. In order to manage these other risks, the College shall limit the amount of exposure to any one counterparty, regardless of the counterparty credit ratings and threshold levels. If the exposure to a counterparty exceeds $60,000,000, the College shall assess the situation and will explore remedial strategies to mitigate this exposure as necessary. Credit exposure may be reduced, for example, through a swap termination, in whole or in part, or a restructuring of the swap to an on-market rate with a smaller notional amount accompanied by a cash payment to the College, which could then be used to redeem underlying debt obligations. These counterparty credit risk guidelines will not mandate or otherwise force automatic termination by the College or the counterparty.
B. Exposure Review of Proposed Swaps
Prior to entering into a new swap transaction, the College, as part of its evaluation of the proposed transaction, will assess the interest rate volatility exposure by treating the proposed swap transaction as an outstanding swap. Such provisions will act only as guidelines in making a determination as to whether or not a proposed transaction should be executed given certain levels of existing and projected net termination exposure to a specific counterparty. These guidelines are not intended to require retroactively additional collateral posting for existing transactions.
VIII. Ongoing Risk Management and Reporting Requirements
A. Active Management
The College will seek to maximize the benefits and minimize the risks it carries by actively managing its interest rate swap program. This will entail monitoring the adequacy of posted collateral, compliance with accounting requirements, and periodic monitoring of market conditions for emergent opportunities and risks. Active management may require modifications of existing positions including, for example:
- Early termination;
- Shortening or lengthening the term;
- Sale or purchase of options;
- Basis conversion
B. On-going Reporting
A report providing the status of all interest rate swap agreements entered into by the College will be prepared no less frequently than semi-annually and shall include the following:
- A description of all outstanding interest rate swap agreements, including project and bonds series, type of swap, rates paid and received by the College, total notional amount, average life of each swap agreement, and remaining term of each swap agreement.
- Highlights of all material changes to swap agreements or new swap agreements entered into by the College since the immediately preceding report.
- The mark to market value of each of the College's swap agreements aggregated by counterparty, and by source and security of payment as applicable.
- The credit rating of each swap counterparty and credit enhancer insuring swap payments, if any.
- Listing of any credit enhancement, liquidity facility or reserves and accounting of all costs and expenses associated with the credit enhancement, liquidity facility or reserves.
IX. Wall Street Transparency and Accountability Act of 2010 ("Dodd-Frank")
Pursuant to legislation under Dodd Frank, the College will be required to comply with certain regulatory requirements and procedures including:
- Legal Entity Identifier. The College shall maintain a unique "legal entity identifier" (LEI) from DTCC-SWIFT, the U.S. Commodity Futures Trading Commission's (CFTC) designated provider of these identifiers.
- Recordkeeping. The College shall maintain comprehensive records in paper or electronic form throughout the life of a swap and for a period of at least five years from the final termination of a swap, and upon request by the CFTC will make such records available within five business days throughout such period.
- Clearing Mandate; End-User Exception. To the extent the College meets the eligibility requirements, the College shall elect to utilize the "end-user exception" to the CFTC's clearing requirement for interest rate and credit default swaps. Without making such election, the College would be required to continually post collateral of varying amounts to a central clearing organization as security for the then market value of the swap transaction.
When conducting board meetings and committee meetings either partially or virtually:
(1) verify that each person participating electronically is a member
(2) provide each member participating electronically with a reasonable opportunity to participate in the meeting, including an opportunity to propose, object to, and vote upon a specific action to be taken by the members, and to see, read or hear the proceedings of the meeting substantially concurrently with those proceedings; and
(3) record and maintain a record of any votes or other actions taken by electronic communication at the meeting.
Last Updated: September 30, 2022