January 20-21, 2005
Montana State University
Series J 2005 Revenue Bonds
MSU Interest Rate Swap Policy Development and Oversight Committee
Following is an outline of the elements of an interest rate swap policy for MSU. The Admin & Finance VP and other finance team members are reviewing a number of such policies that various other universities and governmental agencies have adopted. From this review process, a final policy will be developed and adopted to provide consistent oversight for MSU going forward. As set forth in Attachment B, the MSU Variable Rate Debt Oversight Committee is to be expanded to oversee the proposed interest rate swap, and to propose any necessary future actions.
I. Purpose this introductory paragraph for the swap policy will set forth the purpose of the policy as a means of setting a long term policy guideline for the University to use in consideration of using interest rate swaps, caps, floors, collars, options and other derivative financial products.
II. Legal Authority reference to appropriate Montana legal statutes.
III. Permitted Uses/No Speculation - this element will expressly state that the purposes of MSU using swaps is for hedging interest rate risks, and achieving lower borrowing costs. Speculation in interest rate or other financial markets is expressly prohibited.
IV. Procedure this element will set forth the membership, duties and operations of the oversight committee established by MSU to consider, evaluate and after any implementation, continually monitor all outstanding variable rate financings and all interest rate swaps, caps, collars, etc. entered into by MSU. (As noted above and in Attachment B, it is anticipated this oversight committee will be an expansion of the currently operating Variable Rate Debt Oversight Committee that has been operating since MSU issued its first variable rate bonds in 2003.)
V. Methods of Implementation this element will set forth the preferred and allowed methods of implementing an interest rate swap or other instrument.
VI. Counter-party Credit Standards this element will set forth the purpose of establishing credit worthiness standards for MSUs counter-parties and the minimum ratings and other credit measures necessary for MSU to contract with such a counter-party.
VII. Management of Swap Transaction Risk this element will delineate the known financial and other risks associated with MSU using swaps and set forth guidelines for mitigation measures that make such risks acceptable.
VIII. Reporting this element will set forth the expected written and analytical reports that are necessary in MSUs consideration and potential use of swap. Also outlined will be the report dissemination of the periodic meetings of the debt management oversight committee.