11. Debt Management
11.1. Borrowing Objectives: Otago Polytechnic’s borrowing objectives, while complying with lenders financial ratios and limits, are to balance:
11.1.1. Providing ongoing liquidity and funding support to enable Otago Polytechnic to achieve its education objectives and financial strategy, including capital projects;
11.1.2. Minimising costs and risks in the management of borrowing;
11.1.3. Arranging and structuring long-term borrowing at the lowest achievable interest margins and fees;
11.1.4. Optimising flexibility and spread of debt maturities;
11.1.5. Minimising funding risk
11.2. Liquidity/funding risk: Funding gaps or deficits in various future periods identified in debt forecasts are reliant on the maturity structure of cash, treasury investments and committed bank loans/facilities. Liquidity risk management focuses on the ability to access cash, treasury investments, and committed bank funding at that future time to fund the gaps. A liquidity buffer amount is also maintained to manage any unforeseen or unknown requirements. Control limits are as follows:
11.2.1. Sufficient liquid funds (cash and cash equivalents) and/or undrawn committed borrowing facilities are available to meet the next three months of forecasted operating expenses. Approved cash/treasury investments are set out in Appendix D.
11.2.2. Funds from related parties should not be included within the liquidity measure unless formal documentation of a committed debt facility/loan is executed between the parties.
11.2.3. The maturity profile of the total committed funding in respect to all external borrowing, bank loans, term debt and committed bank facilities, is to be controlled as set out in Appendix E.
11.2.4. The amount and expiry date of all bank loans, committed bank facilities and term debt will not exceed the maximum amount and term of the relevant consent to borrow or Ministerial Determination of Exempt Borrowing (whichever is applicable).
11.2.5. The maximum borrowing term is 10-years unless specifically resolved by Council.
11.2.6. A maturity schedule outside the limits set in this Policy require specific Council approval.
11.3. Financial arrangements: Financial arrangements between Otago Polytechnic and a third party, including hire purchase and any leasing transactions, may not be entered unless approved by the CFO.
11.4. Borrowing ratios and limits:
11.4.1. Borrowing will be managed within the financial ratios and limits required by bank lenders and the TEC. Existing financial ratios and limits are outlined in Appendix H.
11.4.2. Where these limits are likely to be exceeded, notification to Council, TEC and bank lenders is required.
11.5. Security arrangements:
11.5.1. Subject to clause 5.3 Otago Polytechnic generally offers an unsecured/ negative pledge security arrangement for all its borrowing, interest-rate and foreign exchange risk management activities.
11.5.2. Financial covenants may include ratios related to gearing and interest coverage.
11.5.3. Otago Polytechnic does not offer security by way of a charge over land and buildings. Physical assets may be secured where:
11.5.3.1. There is a direct relationship between the borrowing and the purchase or construction of the asset, which it funds, and
11.5.3.2. Otago Polytechnic considers a charge over physical assets to be appropriate, and
11.5.3.3. Any pledging of physical assets must comply with all Treasury Management Policy, statutory and regulatory requirements, and
11.5.3.4. Bank lending may dictate a maximum percentage of specific assets (as a percentage of total assets) that specific security may be given, and
11.5.3.2. Approved by Council.