BOARD OF REGENTS - Nevada System of Higher Educationsystem.nevada.edu/tasks/sites/Nshe/assets/File/... · within the University of Nevada, Reno Health Scprecinct located on the main

Revised: March 2007 1

BOARD OF REGENTS BRIEFING PAPER

1. Agenda Item Title:

Loan Request - University of Nevada, Reno Medical Education Learning Lab

2. BACKGROUND & POLICY CONTEXT OF ISSUE: Executive Summary The University of Nevada, Reno (UNR) is seeking Board approval to secure a commercial bank loan up to $11.2M for its required institutional match in order to complete the $42.2M financing package for the Medical Education Learning Lab (Learning Lab). The $11.2M in institutional funding, to be repaid from written donor pledge agreements, will be matched by $31M in state funds appropriated by the 2009 Legislature. This 59,000 square foot academic building (Exhibit 1) for medical and nursing students will be constructed within the University of Nevada, Reno Health Sciences precinct located on the main campus of UNR (Exhibits 2 and 3). Pending Board approval of the requested Loan Resolution (Exhibit 4), it is anticipated that construction will commence in mid-November 2009 and that the building will be completed in time for the Fall semester of 2011. History • The Learning Lab was first approved during the 2007-09 Legislature, along with two other health

sciences buildings in Southern Nevada; Building B and the Advanced Clinical Training Center, both located on the Shadow Lane campus.

• Except for $3M in design money, all of the 2007-09 state funding for the Learning Lab reverted to the

state in early 2008 as part of the Governor’s budget reduction measure. • In late 2008 the Board of Regents again recommended the Learning Lab to the 2009-11 Legislature as its

number one capital priority. The State Public Works Board (SPWB) and Governor also recommended the Learning Lab for inclusion in the 2009-11 CIP budget and the Legislature approved the $31M in state funding contingent on the institutional match.

Project Management This Learning Lab project is being managed by the SPWB under a Construction Manager at Risk (CMAR) contracting arrangement. The SPWB, following a competitive Request for Qualifications process, selected Sundt Construction as the general contractor. It is anticipated that Sundt, working closely with the project architects for the past several months, will have a final CMAR project cost estimate completed by mid-September. Because this project involves a CMAR contract it must receive final approval from the State Board of Examiners (BOE). Assuming the guaranteed maximum price is acceptable to the SPWB, presentation to the BOE is scheduled for their November 10, 2009 meeting.

(BUSINESS & FINANCE COMMITTEE 09/17/09) Ref. BF-9, Page 1 of 39


Loan Information Because state law (SB578, section 17) requires that all non-state project funds be available to the SPWB before a construction contract can be let, it will be necessary to “monetize” the future donor pledges. It is common for pledged contributions to be paid in installments over a multi-year period. Since UNR will need the funds for the SPWB to proceed with construction, financing will be required to provide construction funds and will be repaid with the future pledge receipts. Precedents for such financing at UNR include the Center for Molecular Medicine (2008) and the Knowledge Center (2005). This requirement, of course, adds to the cost of the project and increases the amount of private fundraising needed to cover the additional interest costs. Working with JNA Consulting Group, UNR has analyzed various financing options including bond issuance and bank financing. At this point, bank financing is deemed preferable for the following reasons:

• Lower interest costs • Lower transaction costs • Greater ability to prepay the loan (as compared to a bond issue) upon the receipt of accelerated

donations • Less institutional and NSHE System staff time required to complete the transaction (i.e., bond credit

rating, due diligence requirements, etc.) Donor Pledges and the Loan Loan payments will be made utilizing the cash flows associated with the donor gift pledges. These pledges are all from local foundations that have long and deep histories of giving to UNR. At present, pledges are sufficient to service the estimated debt payments on the $11.2M loan, plus related financing charges, assuming a tax-exempt 5% fixed interest rate and a 20-year loan amortization. However, due to current capital constraints within the banking industry we have been advised that such a long-term, fixed rate loan from a bank is highly unlikely. In fact, based on initial feedback the best available terms to date have been a 7-year fixed rate loan with a 20-year amortization, which will have to be re-priced or re-financed in year 8 if the loan has not been pre-paid in full. The loan currently under discussion may be pre-paid in whole or in part at any time after the first year without penalty. While there are no guarantees, UNR believes the potential to see accelerated payments of some of the pledges is very possible. The Loan Resolution, if approved by the Board, will delegate to the Vice Chancellor for Finance the authority to arrange for the issuance of the loan. Various financial institutions will be invited to submit financing proposals and, working with UNR, the Vice Chancellor for Finance will be authorized to negotiate terms of the loan with the selected lender. 3. SPECIFIC ACTIONS BEING RECOMMENDED OR REQUESTED: President Milton D. Glick, on behalf of the University of Nevada, Reno requests approval of the following:

1. Resolution to secure a commercial bank loan up to $11.2M for the Medical Education Learning Lab, to be repaid from the principal that has been pledged.

2. To name the Medical Education Learning Lab building in recognition of the lead donor (Donor announcement to be made at the Board meeting).



4. IMPETUS (WHY NOW?): • The development and planning for the Medical Education Learning Lab has been underway for several

years and has been approved by both the Board of Regents and the Nevada Legislature. Both the $31M in state funding and the required $11.2M institutional match are available now.

• A comprehensive long-term financing plan has been developed, long-term interest rates are favorable and, due to recessionary pressures, so too is the current climate for major construction projects.

5. BULLET POINTS TO SUPPORT REQUEST/RECOMMENDATION: • All three proposed health sciences buildings were developed in response to major, statewide studies that

confirmed the pressing need to improve the quality of medical care for the citizens of Nevada.

• The Learning Lab academic building is required if one of the primary goals of the Board - to substantially increase the number of enrolled medical and nursing students - is to be achieved. Specifically, the goals are to increase medical students from 62 to 100, and UNR nursing students from 96 to 192.

• The development and planning for the Medical Education Learning Lab has been underway for several

years and has been approved by both the Board of Regents and the Nevada Legislature. Both state funding and the required institutional match are available now.

• A comprehensive long-term financing plan has been developed, long-term interest rates are favorable,

and the current climate for major construction projects is quite favorable.

• Private donor pledges have been received to fund the institutional match, thereby leveraging the state funding.

6. POTENTIAL ARGUMENTS AGAINST THE REQUEST/RECOMMENDATION: • A major portion of the financing plan involves an NSHE $11.2M loan to be repaid from donor pledged

gifts. While the pledges are supported by donors with long histories of financial performance with UNR (and other community organizations), UNR is nonetheless unable to guarantee the ongoing financial capacities of the donors. Should there be an uncured default in a future pledge payment(s), substitute funding will have to be found and will be a responsibility of UNR.

• Because some of the pledge payments are scheduled to extend beyond the original loan term, there is an interest rate risk associated with re-pricing in the future. Current indications from potential lenders indicate a 7-year borrowing term. This risk is somewhat mitigated by the following:

- A 7-year fixed rate period represents a significant amount of interest rate protection. - There is a high probability that some donations will be accelerated and received prior to year 8. - The loan could be refinanced as either a bank loan or bond issue in year 8, or earlier, should it be

financially advantageous.



7. ALTERNATIVE(S) TO WHAT IS BEING REQUESTED/RECOMMENDED: • Delay the project and build at a later date, most probably at a higher cost, placing both the private and

state funding currently available at great risk.

• Do not construct the project at all and continue to function within the current physical limitations with its related negative impact on the educational environment. Abandon the plan to increase the number of medical and nursing students to meet the state’s needs.

8. COMPLIANCE WITH BOARD POLICY: Consistent With Current Board Policy: Title #_____ Chapter #_____ Section #_______ Amends Current Board Policy: Title #_____ Chapter #_____ Section #_______ X Amends Current Procedures & Guidelines Manual: Chapter #_____ Section #_______ Other: Consistent with current NSHE Procedures and Guidelines Manual, Chapter 5, Section 3. X Fiscal Impact: Yes_X_ No____ Explain: Board approval is being requested for a commercial bank loan, not to exceed $11.2M.



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BOARD OF REGENTS - Nevada System of Higher Educationsystem.nevada.edu/tasks/sites/Nshe/assets/File/... · within the University of Nevada, Reno Health Scprecinct located on the main