Revenue Anticipation Note (RAN)

Description:
Revenue Anticipation Notes, referred to as RANs, offer access to the tax-exempt market for short-term borrowing needs. They are used by private colleges and universities to alleviate cash flow shortfalls caused by a timing difference in tuition revenues and operating expenses. These short-term notes, with maturities of one year or less, are typically issued on the premise that future revenues will be sufficient to meet repayment obligations. For many higher education institutions, RANs are the preferred alternative to other taxable short-term borrowing options for working cash and capital needs.

Benefits:

• Costs are pro-rated and shared with other participating institutions
• Lower borrowing costs with access to tax-exempt fixed rates "vs" taxable variable-rate financing tied to Prime Rate
• Cash flow is easier to manage with the ability to draw and repay throughout the term, also with the option to annually renew
• Unused note proceeds are invested at a taxable interest rate, helping to reduce borrowing costs
• Unrestricted endowment funds are preserved in existing higher-yielding investments

Type of Financing:
RANs are issued on a combined basis with each participating institution being responsible for its separate series of Notes. There is no cross default; therefore, a default by one participating institution to pay principal and interest will not constitute a default on the Program. The Notes are general obligations of each institution. They are unsecured unless the letter-of-credit bank requires security.

Eligibility:
Each institution is required to provide 12 months historical and projected operating cash flows, three years of audited financial statements, a Board Resolution, and a brief overview of their institution (i.e. enrollment, tuition rates, endowment values, etc.) For participating institutions that do not meet minimum coverage ratios, credit enhancement may be required. Credit enhancement could add 1% or more to the financing cost, and is paid by the institution requiring the enhancement.

Fee:
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.

Have questions? Read the RAN Question and Answer page.

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