The Office of Financial Services Internal Bank Overview

1. The Office of Financial Services Internal Bank Overview June, 2012

2. Background Genesis of the Internal Bank • University issued it’s first variable rate bonds in 1985 • Departments repaying debt had a desire to pay a predictable fixed rate • Treasurer’s Office wanted to build a reserve to protect the University from interest rate spikes • In 1988 started charging departments a blended rate, which included both fixed and variable rates accomplishing the above two objectives over the next six years as variable rates remained low • By 1995, the reserve became large enough to allow the University to begin making loans from the reserve • 2009 bank structure expanded and formalized 2

3. Advantages • Goals include, but not limited to: • Managing downside risk • Better cash flow management • Creating long-term debt service reserve resources • Lowering overall cost of capital for the organization • Risk management through possible economic environments • Protecting capital projects from capital market uncertainties 3

4. Asset Liability Management Advantages Creates a link between how assets are borrowed and invested Created the following investment pools: • Short Term – bank deposits, repos, CD’s, etc. • Intermediate Term –fixed income 1 – 3 years average maturity • Long Term – invested in the Long-Term Investment Pool When a new bond issue is contemplated, the amount of fixed and variable rate debt will also effect the amounts invested within the three investment portfolios • Liquidity • Repayment schedules • Interest rate risk 4

5. Current Practices Current Practices Asset Structure • All liquid Assets are available to the Internal Bank • Assets are invested in short, intermediate and long term pools Debt Structure • Debt is held as a portfolio by the Internal Bank • The portfolio is currently long-term fixed and variable-rate demand notes 5

6. Deposits Loans Bank Funds – Sources and Uses Investments General Fund LOCs & Internal Loans Short Term Earnings Units Capital Projects Intermediate Term Other Long Term Leases DEBT Fixed Notes Variable Rate CP Master Leases Capital Leases 6

7. Policies for Loans • Principals Regarding Use of Internal Bank: • Internal loans or lines of credit are to be used for strategic purposes consistent with the University’s Strategic Goals • A fully executed Memorandum of Understanding (MOU) specifying terms and sources of repayment is required prior to the release of funds • Principal is expected to be paid back in regular installments consistent with MOU • All requests must be approved by the unit’s Dean/VP and the Senior Vice President for Business and Finance • Agreements greater than 10 years and/or $10 million are not encouraged and require both the SVP For Business and Finance and IFP approval • Regardless of source, all leases, internal loans and lines of credit to affiliated organizations require approval of IFP • Early repayment is encouraged with no penalty 7

8. Policies for Loans • Capital Project Loans would be made under the following general criteria: • Made from the Internal Bank • Typically for longer term capital projects • Funding not necessarily tied to debt issuance • Repaid on a specific schedule • Rate based on University’s weighted average cost of capital 8

9. Policies for Loans • Lines of Credit and Master Leases would be made under the • following general criteria: • Made from the Internal Bank • To cover shorter term projects • Bridge financing • Repaid to a specific maturity • Rate based on University’s weighted average cost of capital • Master leases are shorter term loans for equipment purchases 9

10. Internal Bank - What’s new • Updates: • New Debt Policy (Board approval April 2012) • Terms updated on six month intervals • Internal Bank Executive Committee Established • Online Internal Financing Request Process 10

11. Term Sheet Internal Financing Term Sheet • Available at: www.treasurer.ohio-state.edu/InternalBank 11

12. Internal Bank Management Bank Oversight Membership of Internal Bank Executive Committee: • Michael Papadakis, VP for Financial Services and University Treasurer • Kristine Devine, Vice President for Operations • Al Rodack, Sr Dir of Financial Services Integrated Financial Planning Committee: • Geoff Chatas, SVP for Business & Finance/CFO • Joseph Alutto, Exec Vice President & Provost • Stephen Gabbe, Senior VP for Health Sciences • Jeff Kaplan, Sr Vp Advancement/Pres Univ Foundtn • Jay Kasey, Sr VP, Admin & Planning • Activities and policies overseen by the SVP For Business and Finance/CFO in conjunction with Board oversight • The Office of Business and Finance develops/recommends policies such as the external and internal debt policies, internal interest rate policies, internal debt limit, Bank asset allocation, long and short-term investment policies for approval of the CFO and/or Board of Trustees as appropriate • Day-to-day activity undertaken by Office of Financial Services/University Treasurer in consultation with other groupsincluding external bankers and advisors 12

13. Results So Far: Results So Far • Board is focused on strategic financial goals • Over the last 27 years, the University has saved over $180 million by issuing variable rate debt and commercial paper • Internal loans outstanding = ~ $43 million • Lines of Credit outstanding = ~ $45 million • Master Leases outstanding = ~ $7 million • Bond projects outstanding = ~ $2.3 billion 13

14. Questions? 14