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| Question: |
Who can participate in the RAN Program? |
| Answer: |
Private colleges and universities. |
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| Question: |
Are we required to be a member of the Federation to participate in this program? |
| Answer: |
The RAN Program is endorsed by the Federation of Illinois Independent Colleges and Universities. An institution does not have to be a Federation member to participate in the RAN Program. |
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| Question: |
How much cost savings is available through this program? |
| Answer: |
Since Revenue Anticipation Notes are tax-exempt, they offer substantial savings in comparison to traditional taxable financing rates that are usually based on Prime Rate. They also offer substantial savings over borrowing from endowment funds that have averaged over 10% on an annualized basis over the past thirty years. Borrowing from a high-yielding endowment constitutes a costly taxable borrowing. |
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| Question: |
How is RAN different from other traditional financing programs? |
| Answer: |
By participating in the RAN program, institutions save on the costs of issuing the Notes. Costs of issuance are payable on a pro-rated basis by each participating institution. The greater the number of participants the lower the cost per participant. |
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| Question: |
How will this program help cash flows? |
| Answer: |
This program helps to alleviate cash flow difficulties caused by a timing difference in tuition revenues and operating expenses. Each participant institution has the flexibility to draw and repay on its note as often as necessary to meet operating needs. Also, any unused note proceeds are invested earning a taxable interest rate, creating additional revenues. Each institution retains any difference in the earnings rate over its interest cost as long as it draws down for its cash needs within six months of Note issuance. The earnings on the invested portion of the note help to reduce the cost of borrowing. This program offers a low-cost financing alternative that allows institutions to preserve higher-yielding endowment funds. |
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| Question: |
Is the rate fixed or variable? |
| Answer: |
The tax-exempt note rate is fixed for one year. The one-year notes are annually renewable at the discretion of the institution. Alternative financing tools, like the Prime Rate based line-of-credit, are typically variable-rate financing structures. |
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| Question: |
How much does it cost to participate? |
| Answer: |
There is no application or other upfront fees. Costs of issuance are shared and payable on a pro-rated basis by each participating institution. The greater the number of participants in the program, the lower the cost will be per participant. Any additional credit enhancement costs are the responsibility of the institution requiring the enhancement and are not shared by the other participants. |
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| Question: |
When is this program available and how often can we participate? |
| Answer: |
This program is available annually, with the application process beginning in January of each year. The Note is issued in March with a one year maturity. |
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| Question: |
How can the Note proceeds be used? |
| Answer: |
Many institutions use the RAN proceeds for working capital or project purposes. Borrowing for capital purposes is allowed up to the amount budgeted for capital projects for the fiscal year. |
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| Question: |
What is the maximum amount we can borrow? |
| Answer: |
The amount differs for each institution. The finance team determines the size of each institution's participation. |
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| Question: |
What happens in the event a participant goes in default? |
| Answer: |
There is no cross default issue; therefore, a default by one participating institution to pay principal and interest will not constitute a default on the Program or other participants. Each participant is separately responsible for its separate series of Notes. |
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| Question: |
What is the application process? |
| Answer: |
Once an institution has expressed an interest in the RAN program, eligibility will be determined and required documentation will be completed with the assistance of the finance team. |
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