The Board of Trustees of Michigan State University (Board of Trustees) has determined that prudent use of debt and debt-related derivative instruments can help MSU achieve its strategic objectives while maintaining its credit ratings at desirable levels, based on an appropriate balance of access to capital markets, financial risk and cost of capital. This policy states the principles that shall govern the use of debt and debt-related derivative instruments to finance Michigan State University (MSU) capital projects.


  1. MSU shall incur Debt (as defined below) in strict compliance with applicable law and with Debt-related contractual covenants, and shall engage in regular internal compliance monitoring.
  2. MSU shall incur Debt to fund only capital projects that are consistent with MSU’s mission and strategic priorities, and financings shall be coordinated to minimize the fixed costs of undertaking a borrowing.
  3. MSU shall incur Debt to fund capital projects only with the prior approval of the Board of Trustees.
  4. The Vice President for Finance and Treasurer, in consultation with the Provost, shall be responsible for analysis and recommendations to the President and Board of Trustees in connection with incurring Debt for capital projects.
  5. MSU shall seek to maintain national credit ratings in the AA/Aa range at a minimum and shall use selected actual and pro forma financial ratios, consistent with major credit rating agency criteria, to confirm that it is operating within appropriate parameters for its desired credit rating.
  6. MSU may incur Debt bearing interest at variable rates when advantageous in light of market conditions.
  7. MSU shall not enter into Debt-related derivative transactions for speculative purposes, but rather shall use Debt-related derivatives only to minimize Debt-service costs and manage interest rate risk.
  8. In entering into interest rate swaps and other derivative transactions, MSU (a) shall limit counterparty risk through protections such as (i) diversity in counterparties, (ii) assessment and monitoring of counterparty credit ratings and (iii) collateralization for credit support requirements, and (b) shall limit structural risk by protections such as (i) closely coordinating derivative amortization schedules with related Debt and (ii) using recognized market interest rate indices.

Debt Subject to Policy

As used in this Policy, “Debt” means MSU obligations for the repayment of borrowed money, however evidenced, incurred to fund the construction or acquisition of capital assets, and related derivative interest rate swaps, caps, floors, and similar arrangements; except that installment purchase obligations, capital lease obligations and obligations payable from specified sources other than MSU general revenues (as defined in MSU bond indentures) are not included in the definition of “Debt” as used in this Policy, even if the obligations are incurred to acquire capital assets.


The Board of Trustees, a Michigan constitutional corporation, has the authority to incur Debt secured by the revenues it controls. The authority for the following actions relating to incurring and managing Debt is delegated to the Vice President for Finance and Treasurer and the Director of Investments and Financial Management, or either of them individually:

  • Establishing guidelines and practices to implement the foregoing Principles;
  • Engaging Debt advisors, underwriters, remarketing agents, swap counterparties, liquidity providers, Debt-service trustees or other external parties necessary to issue or administer Debt; and
  • Executing and filing the annual disclosure required by Rule 15c2-12 of the United States Securities and Exchange Commission.

Policy Reporting Requirements

The Vice President for Finance and Treasurer will provide an annual report to the President and the Trustee Finance and Audit Committee that will detail all outstanding Debt (by series, for bond Debt), including the amount outstanding, interest rates, maturity dates, terms, performance and market values of related derivative instruments, and associated Debt-service requirements, and will summarize the changes in outstanding Debt since the last report. The report also will compare MSU’s Debt capacity to rating agency medians of public institutions of higher education with comparable credit ratings.

Enacted: 6/16/06
Amended: 1/25/13