Officials lack solid plans for loan dollars

Last week, Trustees approved a $200 million bond issue, but it's not clear what the money will cover. The administration wants some spare change -- $200 million, to be exact -- to fund building renovations and construction over the next few years. And although University Trustees last Friday gave the go-ahead for Penn to borrow the money through an upcoming bond sale, administrators haven't yet earmarked the funds for any specific projects. They also declined to expand on exactly how they came up with the figure, saying only that they weighed the "magnitude" of the capital projects against how much additional debt the University can carry. But officials insist that the University's plan to secure the $200 million is financially sound -- and with long-term interest rates near a five-year low, now is the time to take advantage of market conditions. "Obviously, we wouldn't do it if we thought it was going to have a negative long-term effect on the financial health of the University," said Trustee Robert Fox, one of four Trustees on a committee overseeing the venture. "It just seemed like an opportune time to lock in some good rates." The resolution approved by Trustees last Friday says the money may go toward about 30 buildings and complexes, including Franklin Field, the Perelman Quadrangle and Sansom Common. Fox stressed that the University doesn't immediately need the entire sum. "Nobody's running out to spend the $200 million," he said. To obtain the funding, the University will issue the bonds on a yet-to-be-determined day next month and sell them to whomever makes the best offer. Penn would then invest the funds, expecting to get a large enough return on the investment to be able to repay the bonds while keeping the total amount available for use on the projects. To buy the bonds, investment firms would form groups called syndicates. University rules require it to grant a percentage of the business to minority-owned firms. That percentage wasn't available yesterday. Departments, schools and other University offices would request funds for renovations and construction in their annual and five-year budgets. Each request "will go back to Trustees on a case-by-case basis," according to Executive Vice President John Fry, who said the funds "will be spread over at least half a dozen or more projects." The as-yet-undetermined projects will begin between one and three years from now, officials said. Administrators included nearly every existing project because "if you don't list the project, you can't spend money on it," Vice President for Finance Kathy Engebretson said. Many of the requests could cover projects that alumni donors would be unlikely to fund, such as electrical stations and water chillers. After school or department representatives request their share of funding from the $200 million, "they have to show us that they're going to pay it back over time," Engebretson said. For non-academic projects, the central administrative costs paid by each University division, or "responsibility center," would repay the debts. The University may also use the opportunity to refinance its debt repayment. Penn's outstanding debt stood at $994 million June 30. According to charts presented to Trustees last Friday, the University will repay its debt unevenly over the next 25 years, primarily because of certain loans that are due in about 10 years. Under its current debt-service plan, the University is set to repay about $110 million in 2006 and about $80 million in 2007, compared with about $30 million in 2005 and $20 million in 2008. Although refinancing the debt wouldn't give the University any extra funds, it would "smooth" the repayment process over the next 40 years, Engebretson said.

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