SUPPLEMENT DATED DECEMBER 15, 2015
to
OFFICIAL STATEMENT DATED MAY 20, 2015 relating to
MONTGOMERY COUNTY HIGHER EDUCATION AND HEALTH AUTHORITY (Commonwealth of Pennsylvania) Arcadia University Revenue Bonds, Series of 2016
The purpose of this Supplement is to amend and supplement certain information contained in the Official Statement dated May 20, 2015 (the “Original Official Statement”) relating to the above-referenced bonds. This Supplement should be read in conjunction with the Original Official Statement. Terms used in this Supplement have the same meaning as in the Preliminary Official Statement, unless specifically otherwise defined herein.
The University has updated Appendix A attached to the Original Official Statement to reflect new information since the Original Official Statement was published on May 20, 2015. That original Appendix A is hereby replaced in its entirety with the one attached hereto.
Since the publication of the Original Official Statement, the University has finalized its audited financial statements for the fiscal year ended May 31, 2015. The financial statements of the University for the fiscal years ended May 31, 2015 and May 31, 2014 are attached hereto as Appendix B and supplement the financial statements included in Appendix B to the Original Official Statement. Such financial statements have been audited by Baker Tilly Virchow Krause, LLP, a firm of independent certified public accountants, to the extent and for the periods indicated in their report which appears in APPENDIX B hereto.
The Original Official Statement, as supplemented by this Supplement, is to be read and construed as a single document.
BofA Merrill Lynch
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APPENDIX A
CERTAIN INFORMATION REGARDING ARCADIA UNIVERSITY
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Introduction and History
Arcadia University (the “University” or “Arcadia”), was founded in 1853 in Beaver, Pennsylvania, in the western part of the state, as Beaver Female Seminary. It was one of the country’s first private institutions to provide women with an education equivalent to that offered to men. In 1872 the school attained collegiate status and changed its name to Beaver College. Beaver College moved to Jenkintown, Pennsylvania, near Philadelphia, in 1925 and acquired its present campus in nearby Glenside, Pennsylvania, in 1928. Two campus locations were maintained until 1962, when its activities were consolidated at the Glenside campus. In 1972 Beaver College became a coeducational institution, and in 2001 it was approved for university status by the Pennsylvania State Department of Education and renamed Arcadia University. For fall 2015, the University has a full-time equivalent (“FTE”) enrollment of 3,253 students and a total headcount of 3,984 students (2,640 undergraduate and 1,344 graduate students).
Originally under the auspices of the Methodist Episcopal Church, there exists an historic relationship with the Presbyterian Church (U.S.A.); however, the University is currently independent of any church control and fosters an ecumenical spirit.
The University’s campus is the former country estate of William Welsh Harrison. Grey Towers Castle, the principal building on the former estate, is a formal National Historic Landmark. The campus takes its character from the original massive stone buildings of the estate in a natural setting of wooded slopes and open rolling lawns.
Since 1948, Arcadia University has offered international programs for students to gain a global perspective as part of their undergraduate education. Through the Center for Education Abroad, and now The College of Global Studies, Arcadia has educated overseas more than 60,000 students from more than 350 colleges and universities in the United States.
Arcadia has also developed two satellite campuses: one in Christiana, Delaware, and one in King of Prussia, Pennsylvania, to expand offerings in the region. The University currently offers 49 undergraduate programs leading to the degrees of Bachelor of Arts, Bachelor of Science and Bachelor of Fine Arts. At the graduate level, the University offers 14 degree programs at the
Masters level, two doctorate programs, six dual degree programs and 19 graduate certificate programs.
Mission Statement
Arcadia University provides a distinctively global, integrative, and personal learning experience for intellectually curious undergraduate and graduate students in preparation for a life of scholarship, service, and professional contribution.
Vision Statement
Building upon its legacy of distinction in global education, Arcadia University will be a vibrant and supportive community of diverse scholars and learners; renowned for its high-quality faculty, staff, and students; acclaimed for its student-centered focus; and valued for making a difference in the lives of its graduates.
Governance of the University
Governance of the University rests with the Board of Trustees (the “Board”). The Board consists of no fewer than 18 or more than 50 trustees; at least 30 percent of the trustees are required to be University alumni. There are four classifications for trustees: term, recent graduate, honorary and ex-officio. The only trustees entitled to vote on any matter are term, recent graduate and ex- officio. Trustees are elected by a two-thirds (2/3) vote of Trustees present at the meeting where an election is held. Trustees serve for four-year terms and serve no more than three four-year terms. Recent graduate trustees serve for two years. Recent graduate trustees who have served for one two-year term, including any partial terms, are not eligible to serve again as a trustee until one year has elapsed after the end of their term. The Board may grant an exception to these maximum term limits subject to the needs of the University. The Board is organized into an Executive Committee, which exercises all the powers of the Board when the Board is not in session (except for certain actions which require approval of the full Board), and seven standing committees that conduct much of the deliberative and investigative work of the Board. These committees contain administrators, faculty, and, where pertinent, student representatives.
From time to time, the University does business with firms with which a Trustee is affiliated. Such transactions are permitted only if they are on terms no less favorable to the University than could be obtained from unrelated parties and the Trustee discloses the conflict and abstains from voting on any matters related thereto.
The current members of the Board are set forth in the following table.
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Board of Trustees
Christopher R. van de Velde Danielle S. Frank ’12 Chair of the Board Term Expires: June 30, 2018 Former Township Manager Whitemarsh Township J. Wesley Hardin Term Expires: June 30, 2018 President Electronic Instruments, AMETEK, Inc Jo Bennett, J.D., SPHR Term Expires: June 30, 2019 Vice Chair of the Board Partner, Stevens & Lee, P.C. Jean S. Hassler ‘00M Term Expires: June 30, 2018 Former nurse, teacher Term Expires: June 30, 2018 Charles W. Lentz, ‘03M Vice Chair of the Board John W. Hlywak Jr. Principal Principal , The William Group, Inc. McKinley Elementary, Abington Township Term Expires: June 30, 2018 Term Expires: June 30, 2018 Thomas S. Johnston ‘96 Madeline J. Stein, ‘68 Chief Executive Officer Vice Chair of the Board Mucosis Community Volunteer Term Expires: February 28, 2019 Term Expires: June 30, 2018 Richard L. Jones Jr. Dr. Joycellen Young Auritt ‘71 Retired President and CEA Licensed Psychologist Abington Memorial Hospital Term Expires: June 30, 2018 Term Expires: June 30, 2018
Joan N. Brantz, ‘65 Laura M. Korman ‘89, ‘95M Retired Immigration Social Worker Community Volunteer Term Expires: June 30, 2018 Term Expires: June 30, 2018
Mr. Lawrence R. Catuzzi Babette Senker Krug ‘68, 81M Retired Investment Banker and College Retired school teacher Football Coach Term Expires: June 30, 2018 Term Expires: February 28, 2019 Nancy R. Kyle Patricia DeBow ‘02 Corporate Communications and Investor Strategy Consultant, Accenture Relations Specialist Term Expires: June 30, 2018 Term Expires: June 30, 2018
John A. Doherty ’14 Alison L. Aaron Madsen, Esq. ‘85 Term Expires: June 30, 2019 Attorney Term Expires: June 30, 2018 Thora T. Easton ‘68 Retired Global Education Consultant Thomas P. McCollum, ‘83 and Marketing Manager Co-founder Term Expires: June 30, 2018 Bull’s Eye, Sales and Marketing Firm Term Expires: June 30, 2018
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Ana Pujols McKee, M.D. William U. Westerfield Executive Vice President and Retired Partner, PriceWaterhouse Coopers Chief Medical Officer Term Expires: February 28, 2019 The Joint Commission Term Expires: June 30, 2018 Theodore V. Wood, Jr. Retired President Marc McKenna, M.D. Tigaco, Inc. Physician, Chestnut Hill Family Practice Term Expires: June 30, 2018 Term Expires: June 30, 2018 Ex-Officio Trustee Hugh G. Moulton, Esq. Retired Executive Vice President Dr. Nicolette DeVille Christensen Unisource Worldwide, Inc. President Term Expires: June 30, 2018 Arcadia University
David A. Plastino Trustees Emeritus Retired, Senior VP of Private Banking, UBS Financial Services, Inc. Marilyn Sunners Cranin ‘54 Term Expires: February 28, 2019 Landscape Designer
Clair M. Raubenstine, CPA, CMA, CFM Beverly Rappaport Goldberg, ‘53 Retired Executive Vice President and CFO Former Executive PHH Corporation Abington Memorial Hospital Term Expires: June 30, 2018 Ann N. Greene Gerald B. Rorer Retired Assistant to the Dean of Admissions Real Estate Investor University of Pennsylvania Term Expires: June 30, 2018 Daniel J. Paracka Sidney Rosenblatt Consultant Former Executive Vice President & CFO The Rand Group Universal Display Corporation Term Expires: February 28, 2019 Lowell S. Thomas, Jr. ‘01H Of Counsel Dr. Allison Rossett, ‘68 Saul Ewing LLP Principal, Allison Rossett & Associates Term Expires: June 30, 2018 Life Trustee Rosemary Deniken Blankley ’57, ‘06H Ellen Toplin National Chair of the Arcadia University Retired Marketing, Public Relations, and Annual Fund Advertising Agency Owner Term Expires: June 30, 2019
Lyanne Wassermann, ‘61 Retired Non-profit Manager and Community Volunteer Term Expires: June 30, 2018
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Principal Administrative Officers of the University
The President is the Chief Executive Officer (CEO) of the University. The President administers the University on a day-to-day basis through an executive staff consisting of the Vice Presidents for Academic Affairs, Finance and Administration, University Relations, Enrollment Management and Student Affairs, University Advancement, and The College of Global Studies, as well as the Director of Athletics and Recreation.
Dr. Nicolette DeVille Christensen was appointed President of the University by the Board on October 11, 2013. She previously held the position of Executive Director for The College of Global Studies. Dr. Christensen is a globally recognized scholar and leader in international education, noted for such initiatives as creating the award-winning Center for Research and Assessment, a unit that developed the international education program assessment model ATLAS; appointing a full-time Health, Safety, and Security Director to oversee all Arcadia programs, staff, and centers worldwide; and expanding Arcadia’s global footprint by establishing new centers in Barcelona, Dublin, Edinburgh, Havana, Istanbul, London, Melbourne, Rome, Sicily, and Valparaiso. Under her leadership, The College of Global Studies has been recognized by the American Association of University Administrators (AAUA) and the Pennsylvania Council for International Education (PaCIE). Dr. Christensen also is noted for establishing the Global Scholar Award and the Award for Teaching Excellence to mark student and faculty contributions to international education. Prior to joining Arcadia in 2008, Dr. Christensen served as Executive Director for Global Academic Management at New York University. She has more than 20 years of experience in a variety of roles in higher education and business, including serving as a tenured faculty member (business management and marketing) and senior study abroad administrator at Guilford College in Greensboro, N.C., as well as an international education consultant. Dr. Christensen serves on several task forces, committees, and professional boards, including the Association of International Education Administrators, the Special Olympics Advisory Board, the United Nations Task Force on Education, and the United Nations Commission on Disarmament Education, Conflict Resolution, and Peace (founded by the International Association of University Presidents in conjunction with the UN). She earned a doctorate in Leadership and Cultural Foundations from the University of North Carolina, Greensboro, a master of business administration from the University of North Texas, and a bachelor of science degree from the College of St. Mary in Nebraska.
Dr. Matthew Golden is Vice President for University Relations. He was appointed to this position in October 2014 to lead Arcadia’s newly formed University Relations Unit. Dr. Golden has extensive experience in strategic communications and external relations in higher education. Prior to coming to Arcadia, Dr. Golden, was associate vice president for communications, marketing, and branding at New Jersey Institute of Technology (NJIT). He directed NJIT’s internal, external, and strategic communications, including media relations, emergency communications, publications, and marketing and editorial services. Prior to NJIT, he served in a similar capacity for nearly nine years at the College of New Jersey, where he enhanced media relations, executive communications, and supported government, community, and alumni relations initiatives. Dr. Golden earned a Doctor of Education in Higher Education Administration and Leadership from The George Washington University, a Master of Communications from Rutgers University, and a Bachelor of Arts in Sociology from Princeton University. He brings to Arcadia extensive crisis management experience after having
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successfully completed training with the Department of Homeland Security and Federal Emergency Management Agency’s Enhanced Incident Management Command program.
Dr. Barbara F. Nodine is Provost and Vice President for Academic Affairs. Dr. Nodine, who also is a professor of psychology, joined Arcadia in 1970 as a faculty member in the Psychology Department. She also has held several academic leadership positions at Arcadia, including chair of the Psychology Department and interim dean of the College of Arts and Sciences. During her tenure at Arcadia, Nodine has been recognized for her research and work in the applications of cognitive psychology to teaching and learning and has maintained a deep dedication to the research-based, student-centered curriculum that guides the Psychology Department at Arcadia. Dr. Nodine earned a bachelor’s degree at Bucknell University and a doctorate at the University of Massachusetts. Awards she has received for her scholarship and teaching include the American Psychological Foundation Distinguished Teaching Award; the American Psychological Association Teaching Excellence Award, and at Arcadia, the CASE Professor of the Year and the Lindback Foundation Award for Distinction Teaching.
Mark Lapreziosa was appointed Vice President of Enrollment Management and Student Affairs in July 2011. His tenure with Arcadia is 30 years strong, growing the office from an Admissions Office to a comprehensive Office of Enrollment Management, which includes admissions, financial aid and the One-Stop Shop. Arcadia has delivered the largest classes in its history under his management, which includes being a leader in the significant increases in student retention. Mr. Lapreziosa is a member of the National Association for College Admission Counseling (NACAC), the Pennsylvania Association for College Admission Counseling (PACAC), the American Association of Collegiate Registrars and Admissions Officers (AACRAO), and NAFSA: the Association of International Educators. He earned a degree in American Government from the University of Virginia.
Mary McRea was appointed Vice President for University Advancement in August 2012. She leads the University’s business development, alumni, and fundraising operations through the Offices of Alumni Relations and Development. Ms. McRae has more than 20 years of fundraising and donor relations experience. Prior to joining Arcadia, she served as Vice President for University Advancement for Rowan University, where she redirected alumni activities to increase participation, restructured the fundraising and donor stewardship operations, expanded the Rowan Foundation, and laid the groundwork for a comprehensive capital campaign. Before her tenure at Rowan, Ms. McRae was Associate Vice President for Development at Villanova University, where she helped lead successful capital and annual giving campaigns, launched a parents’ program, and increased corporate and foundation giving.
Eric R. Nelson was appointed Vice President for Finance and Administration and Treasurer of Arcadia University in October 2015. Mr. Nelson is responsible for all financial and administrative functions at the University. Immediately prior to coming to Arcadia, Mr. Nelson served as Vice President for Finance and Administration at Misericordia University in Dallas, PA. While there, he completed a $27 million building program that included a multipurpose classroom/residence hall, field house, baseball stadium, and football stadium; facilitated infrastructure improvements to campus; oversaw the restructuring of Misericordia’s long-term debt, reducing risk and improving its financial position; managed the investment of the University’s endowment, and guided positive fiscal years resulting in revenue surpluses of over $24 million. Mr. Nelson’s additional higher education experience includes serving as Vice
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President for Finance at Wesley College in Dover, Delaware; as Assistant Director of the Center for Adult Studies at Wesley; and as University Departmental Auditor at the University of Delaware. He also served as an Assistant Vice President at MBNA America Bank in Wilmington, Delaware, and as a Provider Auditor at Blue Cross and Blue Shield in Delaware. Mr. Nelson earned an MBA at Baker College in Michigan and a Bachelor of Science in Accounting at Wesley College. He served as Vice President of the Northeast Pennsylvania Education Consortium and the Secretary/Treasurer of the Northeast Pennsylvania Risk Management Group, Inc. He is a member of the Board of Directors of the Back Mountain Chamber of Commerce, as well as a member of the National Association of College and University Business Officers and of the College and University Personnel Association.
Lorna Stern was appointed Vice President and Executive Director of The College of Global Studies (“TCGS”) at Arcadia in October 2013. Ms. Stern began her career with Arcadia in 1990, serving in numerous roles in TCGS, involving institutional and advisory board relations, student services, marketing and publications, strategic development, and associate and deputy directorships, with a promotion to Associate Vice President in 2011. During her decades of leadership, Ms. Stern has played an instrumental role in the significant growth of TCGS. Furthering the mission of global understanding, Ms. Stern has served on several national boards in the field and has delivered many presentations throughout the world of international education. She also serves on the board of Overseas Council and as an Advisor to Language Corps, an overseas training program for English as a Second Language (ESL) teachers. Ms. Stern is a member of NAFSA: The Association of International Educators, AIEA and the Forum on Education Abroad. She holds an undergraduate degree in international relations with an emphasis on African affairs from Wells College, and earned her Master of Arts in Law and Diplomacy (MALD) at the Fletcher School of Law and Diplomacy at Tufts University, with a disciplinary focus on international law and the Middle East. Ms. Stern also was a Rotary Scholar at the University of Cape Town, exploring issues of comparative African government and law.
Accreditations and Approving Organizations
The University is accredited by the following entities:
Commission on Higher Education of the Middle States Association of Universities and Schools National Association of Schools of Art and Design Commission on Accreditation in Physical Therapy Education Commonwealth of Pennsylvania and the States of New Jersey and New York (teacher education) Accreditation Review Commission of Education for the Physician Assistant Council on Education for Public Health American Board of Genetic Counseling Accreditation Council for Business Schools and Programs Forensic Science Education Programs Accreditation Commission Masters in Psychology Accreditation Council
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The University is also approved by the following organizations for related programs:
The New American Colleges and Universities American Art Therapy Association American Chemical Society (chemistry programs) American Psychological Association Council of Applied Masters Programs in Psychology (psychology programs) Global Health Education Consortium National Board for Certified Counselors Physician Assistant Education Association The Association to Advance Collegiate Schools of Business International
The College of Global Studies
Arcadia is internationally recognized for the quality and diversity of study abroad programs available through The College of Global Studies (“TCGS”), one of the first colleges of its kind in the United States dedicated to international education.
With 130 programs in 15 foreign countries, each year TCGS enrolls several thousand students from more than 350 colleges and universities across the nation. Institutions whose students frequently enroll in TCGS 's programs include: Northwestern University, Santa Clara University, Denison College, Villanova University, University of Minnesota Twin Cities, Pennsylvania State University, and the University of Colorado, among others. TCGS offers rigorous academic study abroad programs, certificates, research opportunities, internships, service learning, and cohort programs, supported by faculty and staff at home and abroad. In each of the most recent five fiscal years, TCGS has contributed at least $500,000 of net revenue to the University.
Further information on The College of Global Studies can be found in Note “17” to the University’s audited financial statements for the year ended May 31, 2015.
Facilities
The University has 22 buildings and approximately 100 acres, including more than 65 acres which comprise its main campus in Glenside, Pennsylvania. Key University facilities include:
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Grey Towers Castle
Grey Towers Castle is the centerpiece of the campus and a National Historic Landmark. It houses the Office of Enrollment Management, academic and administrative offices, and serves as a residence for approximately 60 students. The Castle was designed by Horace Trumbauer and completed in 1898. In 1929, Arcadia (then Beaver College, located in Jenkintown) purchased Grey Towers from William Welsh Harrison's widow and son. For a number of years, classes were held in Jenkintown and Glenside, but in 1962, the University transferred completely to the Grey Towers property. The Society for Castle Restoration (SCR), a student organization, offers tours and conducts fundraising activities, such as the annual Haunted Castle in October. The Castle has undergone restoration for the past several years. In a process that took two summers, the exterior stonework was re-pointed and repaired with funds from the Commonwealth of Pennsylvania. Recently, the Castle dining room has been restored to its original splendor.
Benton Spruance Fine Arts Center
The Benton Spruance Fine Arts Center houses the Art Gallery, which serves as a recognized regional base of excellence in the visual arts. This building was also designed by Trumbauer, in 1893. The Gallery is funded in part by the Philadelphia Exhibitions Initiative (a program funded by The Pew Charitable Trusts), the National Endowment for the Arts, and the University Art Gallery and private foundations, such as the Arcadia Foundation, the William B. Dietrich Foundation, the Samuel S. Fels Fund and the Montgomery County Foundation.
Marian Angell Boyer Hall of Science
Boyer Hall of Science houses the departments of Biology, Chemistry and Physics, Computer Science and Mathematics, Psychology, and Sociology, Anthropology and Criminal Justice.
Landman Library
Named for former Arcadia President Dr. Bette Landman, the Landman Library furthers the University’s global mission by offering students and faculty increased technology for collaborative education and access to learning partners both on campus and around the globe.
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Blankley Alumni House
Named in 2005 for Arcadia alumnus Rosemary Deniken Blankley '57, this building, formerly known as Blake Hall, was the gatehouse of the Harrison Estate. The stone arch to the right of the building was the original entrance to the estate, and adjacent to the building is the Moon Gate, which was restored several years ago. The exterior stonework of Blankley Hall was restored in 1998, under a grant from the Commonwealth of Pennsylvania. The interior was restored in 2014 to provide space for its current occupants, the Offices of University Advancement and Alumni Relations.
Easton Hall
Easton Hall, next to Brubaker Hall, provides classroom and office space for Arcadia students and faculty. The new residents are Modern Languages, Political Science, International Peace and Conflict Resolution, and Sociology, Anthropology and Criminal Justice. The building also houses a café featuring freshly made sandwiches, salads, and Starbucks coffee. The 18,000-square-foot addition opened in 2008.
The University Commons
The Commons, which opened in January 2012, is a 62,000- square-foot campus center featuring conference rooms; student art galleries; a multipurpose room; The Chat, a snack bar for convenient “grab and go” food and drinks; a game room; workout spaces for health and fitness; an Athletic Hall of Fame; a fireplace lounge; student activity areas for office work and project collaborations; outdoor park and meeting areas, plazas, and cafes; an interactive high-definition video conferencing space; generous open space throughout the building; an outdoor balcony; and additions to the Kuch Center for Athletics and Recreation.
Student Residences
More than two-thirds of undergraduate students live on campus in one of six residence halls and one apartment-style housing complex. First-year students may select from four traditional residence halls (Dilworth, Heinz, Kistler, and Thomas Halls) and the Castle. Upper class students may select from any one of the four traditional residence halls as well as Knight Hall, which has a suite-style configuration, or apartment-style housing in Oak Summit Apartments, which consists of one or two bedroom units and is within walking distance to campus.
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University Enrollment
The following table sets forth student enrollment for the current and past four academic years:
Fall of 2011-12 2012-13 2013-14 2014-15 2015-16
Undergraduate Headcount 2,211 2,360 2,453 2,594 2,640 Graduate Headcount 1,721 1,668 1,453 1,345 1,344 Total Headcount 3,932 4,028 3,906 3,939 3,984
Undergraduate FTE’s 2,075 2,222 2,324 2,443 2,466 Graduate FTE’s 942 956 864 786 787 Total FTE’s 3,017 3,178 3,188 3,229 3,253
Full-Time Undergraduate Applications and Enrollment
The following table sets forth applications, acceptances, acceptance rates, freshmen and transfer enrollments and mean SAT scores of freshmen enrolled full-time for the current and past four academic years:
Fall of 2011-12 2012-13 2013-14 2014-15 2015-16
Total Applications Freshman 7,673 9,044 9,615 9,635 9,641 Transfers 767 741 747 733 669 Total 8,440 9,785 10,362 10,368 10,310
Total Acceptances Freshman 4,108 5,120 5,739 5,665 5,713 Transfers 395 375 359 333 318 Total 4,503 5,495 6,098 5,998 6,031
Acceptance Rate Freshman 53.4% 56.6% 59. 7% 58. 8% 59.3% Transfers 51.5% 50.6% 48.1% 45.4% 47.5%
Total Enrolled Freshman 510 681 597 673 598 Transfers 152 147 116 119 123 Total 662 828 713 792 721
Matriculation Rate Freshman 12.4% 13.3% 10.4% 11.9% 10.5% Transfers 38.5% 39.2% 32.3% 35.7% 38.7%
Enrolled Mean SAT 1,115 1,108 1,104 1,112 1,103 Score
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Undergraduate Retention. The ten-year average Freshman-to-Sophomore retention rate has measured approximately 79%. In 2014 and 2015, this rate was 82% and 79%, respectively.
Full-Time Graduate Applications and Enrollment
The following table shows applications, acceptances, acceptance rates and enrollments of graduate students enrolled full-time for the current and past four academic years.
Academic Year 2011-12 2012-13 2013-14 2014-15 2015-16 Total Applications 2,297 2,845 3,011 3,072 3,274
Total Acceptances 494 482 418 461 450
Acceptance Rate 21.5% 16.9% 13.9% 15.0% 13.7%
Matriculation Rate 43.7% 44.8% 50.2% 44.0% 48.2%
Total Enrolled 216 216 210 203 217
Geographic Distribution of Incoming Freshman and Transfer Students
Percentage Entering Classes of 2007-08 vs. 2015-16
State 2007-08 2015-16 Pennsylvania 60.4% 55.6% New Jersey 18.8% 18.4% New York 5.4% 5.2% Maryland 2.3% 4.3% Delaware 1.5% 0.4% California 0.6% 2.5% Connecticut 1.8% 1.8% Florida 0.1% 1.0% Texas 0.1% 1.2% Massachusetts 1.3% 1.0%
Other U.S. States 5.7% 8.5% Non U.S. 1.8% 2.3%
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Undergraduate Student Fees
The following table shows tuition and fees for the academic years indicated:
2011-12 2012-13 2013-14 2014-15 2015-16 Full-Time Tuition $33,490 $34,960 $36,150 $37,500 $38,900 Room and Board 11,640 12,150 12,560 12,740 13,200 Fees 660 660 660 660 660
Total Resident $45,790 $47,770 $49,370 $50,900 $52,760 Total Commuter $34,150 $35,620 $36,810 $38,160 $39,560
Part-Time Tuition per Credit Hour $560 $580 $595 $620 $640
Institutionally Funded Scholarships
The following table illustrates the 5-year trend of institutionally funded scholarships:
2010-11 2011-12 2012-13 2013-14 2014-15 Institutionally Funded Scholarships ($000’s) $31,364 $33,383 $36,955 $40,964 $43,116
Competition
The following table shows tuition and fees for the 2015-16 academic year for the private institutions the University considers its main competitors based on the number of overlapping applications.
Private Institutions Tuition & Fees Drexel University $48,760 Saint Joseph’s University $42,180 Widener University $41,320 LaSalle University $41,100 University of Scranton $41,040 Albright College $39,850 Arcadia University $39,560 Lebanon Valley College $39,030 Rider University $38,360 University of the Sciences $37,470
Source: College and University websites
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Bachelor’s Degrees
Actuarial Science Education Actuarial Science (BS) Early Elementary Education International Studies (BA) International Studies (BA) Art & Design Early Elementary and Special Art (BFA, BA) Education (BA) Liberal Studies Art History (BA) Middle School Education Liberal Studies (BA) Scientific Illustration (BA) (BA) Secondary Education Mathematics Biology (BA, BS) Mathematics (BA, BS) Biology (BA) Secondary Education and Special Education Modern Languages Business, Economics & (BA, BS) French Studies (BA, MAP) Health Administration Italian Studies (BA, MAP) Accounting (BA, BS) English Spanish (BA) Business Administration (BA, English (BA) Spanish Cultural Studies (BA, BS) English with concentration in MAP) Health Administration (BA) creative writing (BA) International Business and Philosophy and Religion Culture (BA) Global Legal Studies Philosophy (BA) Sports Management Global Legal Studies (BA) (BA, BS) Political Science Global Media Political Science (BA) Chemistry Global Media (BA) Chemistry (BA, BS) Psychology Chemistry and Business (BS) Global Security and Psychology (BA) Emergency Management Communications Global Security and Scientific Illustration Communication (BA) Emergency Management Scientific Illustration (BA) (BA) Computer Science Sociology Actuarial Science (BS) Health Administration Sociology (BA) Computer Science (BA, BS) Health Administration (BA) Sport Psychology Computing Technology History Sport Psychology (BA) Computing Technology (BA) History (BA) Mathematics (BA, BS) Sports Management Interdisciplinary Science Sports Management (BA, BS) Criminal Justice Interdisciplinary Science Criminal Justice (BA) (BA) Theater Arts and Acting Acting (BFA) Cultural Anthropology International Business Theater Arts and English Cultural Anthropology (BA) International Business and (BA) Culture (BA)
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Master’s Degrees
Business Administration Humanities Master of Business Administration (MBA) Master of Arts in Humanities (MAH) with a Global Perspective Master of Business Administration (MBA) International Peace and Conflict with a Concentration in Global Business Resolution Diplomacy Master of Arts in International Peace and International MBA Program (Paris, France, Conflict Resolution (MAIPCR) Galati, Romania, Singapore) International Public Relations Counseling Psychology Master of Arts in International Public Master of Arts in Counseling Psychology Relations (MA) (MACP) International Relations and Diplomacy Creative Writing Master of Arts in International Relations and Master of Fine Arts in Creative Writing Diplomacy (MA) (MFA) Physician Assistant English Master of Medical Science (MMS) Master of Arts in English (MA) Public Health Forensic Science Master of Public Health (MPH) Master of Science in Forensic Science (MSFS) Education Master of Education (M.Ed.) Genetic Counseling Master of Arts in Education (M.A.Ed.) Master of Science in Genetic Counseling Doctoral Degrees (MSGC) Physical Therapy Doctor of Physical Therapy (DPT) Health Education Education Master of Arts in Health Education (MAHE) Doctor of Education in Educational Master of Science in Health Education Leadership (Ed.D.) (MSHE)
Faculty/Employees
For the 2015-16 academic year, the University employs 164 full-time faculty, 45% of whom are tenured. The University’s full-time faculty is augmented by a part-time faculty of approximately 324 members.
For the 2015-16 academic year, the University has a total of 302 full-time and 50 part-time employees (not including employees of TCGS).
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The following is a breakdown of the core University employees by position:
Number Faculty (full-time) 164 Faculty (part-time) 324 Administrative Staff (full-time) 302 Administrative Staff (part-time) 50 Total 840
Student to Faculty Ratio (FTE’s) FY 2011 14 to 1 FY 2012 14 to 1 FY 2013 13 to 1 FY 2014 12 to 1 FY 2015 12 to 1
Total % with Terminal Number Degree Professors 28 100.0% Associate Professors 43 97.0% Assistant Professors 82 95.0% Instructors 11 0.0% Total 164 Adjuncts 324
In addition to the employees referenced above, the University also employs 56 full-time TCGS administrators and support personnel in the United States. The US-based employees are complimented by 68 full and part-time staff members and 86 part-time faculty located overseas.
The University does not directly employ personnel for food service, grounds and maintenance or the bookstore. These services are contracted for with third parties.
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Accounting Matters
In October 2012, the University’s Board of Trustees approved a change in the fiscal year end of the University from June 30 to May 31. The University's financial statements for the fiscal years ended May 31, 2014 and May 31, 2015 are included as Appendix B to this Official Statement. The University's financial statements are prepared on the accrual basis of accounting in conformity with accounting principles generally accepted in the United States of America. The University reports total assets, liabilities, and net assets in a statement of financial position; reports the change in net assets in a statement of activities; and reports the sources and uses of cash and cash equivalents in a statement of cash flows.
Net assets and revenues, gains, expenses, and losses are classified as unrestricted, temporarily restricted or permanently restricted based on the existence or absence of donor-imposed restrictions as follows:
Permanently restricted net assets are subject to donor-imposed stipulations that are maintained permanently by the University. Generally, the donors of these assets permit the University to use all or part of the income earned on these assets. Such assets primarily include the University’s permanent endowment funds.
Temporarily restricted net assets are subject to donor-imposed restrictions that can be fulfilled by actions of the University pursuant to those restrictions or that expire by the passage of time. Contributions received with donor imposed restrictions that are met in the same year as received are recorded as temporarily restricted revenue and subsequently released from restriction.
Unrestricted net assets are not subject to donor-imposed restrictions. Unrestricted net assets may be designated for specific purposes by action of the Board of Trustees.
Summary Financial Information
The following table sets forth certain financial information for the University for the two fiscal years ended June 30, 2011 and June 30, 2012, for the 11 months ended May 31, 2013, and for the two fiscal years ended May 31, 2014 and May 31, 2015. This information is extracted from the University’s audited financial statements for such periods and should be read in conjunction with the University’s audited financial statements, including the Notes thereto, for the fiscal years ended May 31, 2014 and May 31, 2105, included in Appendix B to this Official Statement.
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SUMMARY FINANCIAL INFORMATION
11 Months Year Ended June 30, Ended May 31, Year Ended May 31, 2011 2012 2013* 2014 2015 Arcadia University Operations Student related revenue Gross student tuition and fees $88,176 $90,832 $97,591 $104,338 $110,884 Less: Financial assistance (31,364) (33,383) (36,955) (40,964) (43,116) Net student tuition and fees 56,812 57,449 60,636 63,374 67,768 Sales and service of auxiliary 12,404 12,094 11,873 11,247 10,758 enterprises 69,216 69,543 72,509 74,621 78,526 Government grants 1,053 997 1,017 783 845 Private gifts and grants 998 1,575 1,139 655 997 Endowment income 1,081 1,370 1,436 1,645 1,654 Investment income 233 136 90 48 196 Other sources 340 296 240 366 653 Net assets released from restrictions 2,755 2,046 1,109 ,937 1,450 Total operating revenues 75,676 75,963 77,540 79,055 84,321
Operating Expenses Instruction 32,818 33,896 32,332 34,157 34,013 Academic Support 7,824 7,989 7,366 7,581 7,207 Student services 11,152 12,636 13,388 13,466 15,589 Institutional support 11,466 11,637 11,829 13,608 16,932 Auxiliary enterprises 11,651 11,619 11,258 12,568 9,971 Research and public service 529 993 Total operating expenses 74,911 77,867 76,173 81,909 84,705
Change in net assets 765 (1,904) 1,367 (2,854) (384)
College of Global Studies Gross Operating revenues 39,641 41,906 43,484 42,396 44,415 Less: financial assistance (1,050) (826) (625) (529) (925) Net operating revenues 38,591 41,080 42,859 41,867 43,490 Operating expenses 36,160 39,893 40,097 41,333 42,456 Change in net assets 2,431 1,187 2,762 534 1,034
Change in net assets from operating activities 3,196 (717) 4,129 (2,320) 650
Plus: Depreciation and interest expense 7,998 8,973 9,155 10,703 8,245 Unrestricted operating surplus available for debt service $11,194 $8,256 $13,284 $8,383 $8,895 ______*In fiscal year 2013 there was a change in fiscal year-end from June 30 to May 31. Therefore audited financial statements are for eleven months and the information presented may not be comparable to other years.
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Certain Operating Metrics
The following table shows the full-time equivalent (“FTE”) enrollment (average of fall and spring semester FTE enrollment) and the net tuition revenue per FTE for the academic years indicated:
2010-11 2011-12 2012-13 2013-14 2014-15
FTE Students 3,036 2,993 3,123 3,122 3,390 Net Tuition and Fees per FTE Student $18,713 $19,194 $19,416 $20,299 $19,991
Management’s Discussion
Operating Performance. The primary components of University revenue consist of net tuition and fees, net auxiliary enterprise revenue and net revenue associated with TCGS. For the year ended May 31, 2015, net tuition and fees increased 6.9% from the prior year and auxiliary revenue decreased by 4.3%. Additionally, TCGS net tuition revenue increased by 3.9% from the prior year.
Balance Sheet Resources. Due to less than favorable equity markets, the University’s investments declined for the year ended May 31, 2015. The market value of the University’s investments at May 31, 2015 was $63.7 million, approximately $3.2 million lower than the previous year. The University’s combined cash and investments were $86.1 million at May 31, 2015, which compares favorably to its cash and investments of $76.3 million four years earlier, at the end of fiscal year 2011.
The College of Global Studies. The nationally prominent TCGS differentiates Arcadia from many of its competitors and acts as a cornerstone for the University’s commitment to preparing students to live in a global society. TCGS is the largest provider of study abroad programs offered by a university (versus a non-university non-profit or for-profit provider). Over the past five years, the net revenue contribution from TCGS to the University’s operating performance has ranged from a low of $500,000 in fiscal year 2014 to a high $2.8 million for the eleven months ended May 31, 2013. It was $1.0 million in fiscal year 2015. TCGS brings academic excellence and a uniquely diversified revenue stream to the University. During the year ended May 31, 2015, students from more than 350 colleges and universities chose TCGS programs to study or complete internships abroad.
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Current Budget. The operating budget expenditures are provided by a variety of sources. In fiscal year 2016, the University expects to derive its operating revenues from tuition and fees (77%), auxiliary enterprises (17%); gifts, grants, and contracts (2%); distribution from the endowment (3%); and other sources (1%). The table below summarizes the fiscal year 2016 budget.
Fiscal Year 2016 Operating Budget (in thousands)
Budget Revenues Tuition and fees $115,114 Auxiliary enterprises 14,976 Student aid (47,348) Net student revenues 82,742 Private gifts and grants 682 Government grants 813 Endowment income 2,406 Investment income 50 Other sources 260 Total operating revenues 86,953
Expenses Salaries 41,044 Employee Benefits 11,146 Non-Personnel 24,907 Depreciation 4,279 Interest 3,541 Reserve for Enrollment Changes 781 Total operating expenses 85,698 Increase/(decrease) in net assets from 1,255 university operations
Increase/(decrease) in net assets from 745 operations of The College of Global Studies
Total increase (decrease) in net assets 2,000 from operating activities
Plus : Depreciation and interest expense 7,820
Operating income available for debt service $ 9,820
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Investments and Net Assets
The University’s endowment fund, including funds held in trust by others, has grown over the past three years from just under $52.9 million at June 30, 2012 to $67.7 million at May 31, 2015. This growth has been stimulated by improved equity markets, a five percent (5%) spending policy and Trustee designation of all unrestricted estate gifts to the endowment. More than two- thirds of the University’s endowment funds are Trustee designated (unrestricted) funds.
The University’s endowment fund asset allocation policy directs approximately 25% to fixed income securities, 65% to common stocks, 3% to Real Return Strategy Funds and 7% to non- traditional investments (e.g., private equity, venture capital, and real estate.) At May 31, 2015, 29.4% were in fixed income investments, 60.5% were invested in equities, 4.5% were in Real Return Strategy Funds and 5.6% were in alternative investments.
Additional information with respect to the investment and performance of the University’s endowment fund, can be found in Note “10” (Endowments) and Note “14” (Fair Value Measurements) in the University’s audited financial Statements for the year ended May 31, 2015 included in Appendix B of this Official Statement.
Gifts, Contributions and Grants
Total gifts, grants and bequests to the University reflected on a cash basis for the previous five years and their origin are as follows:
11 Months Year Ended June 30, Ended May 31, Year Ended May 31, 2011 2012 2013* 2014 2015
Alumni $ 813,015 $ 2,244,177 $1,132,288 $ 2,244,177 $ 1,374,216 Trustees 93,105 105,047 76,326 105,047 129,036 Parents 15,245 10,123 39,025 10,123 21,949 Friends 326,282 446,507 167,722 446,507 489,725 Foundations 361,625 517,201 422,035 517,201 178,183 Corporations 145,732 54,235 114,378 54,235 76,282 Matching 45,432 37,710 28,853 37,710 41,510 Other 3,059,813 112,190 20,573 112,190 36,233
Total $4,860,249 $3,527,190 $2,001,200 $3,527,190 $2,347,134
Total Unrestricted $814,677 $633,232 $807,767 $633,232 $670,461
*In fiscal year 2013 there was a change in fiscal year-end from June 30 to May 31. Therefore the information presented is for eleven months and may not be comparable to other years.
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Retirement Plans & Benefits
All full-time employees of the University are eligible to participate in the University’s defined contribution retirement plan. Prior to January 1, 2015, covered employees could choose either Teachers Insurance and Annuity Association (TIAA-CREF) or the Vanguard Group as their plan trustee. As of January 1, 2015, the University’s Plan moved to a single provider structure with TIAA-CREF as the plan trustee. All new contributions and new participants will be with TIAA- CREF. The TIAA-CREF single provider plan is inclusive of investments from other investment firms including The Vanguard Group and Dodge and Cox. The University’s matching contribution is equal to 100% of the first 6.49% of employee contributions. Employee contributions of 6.5% and greater are matched by a University contribution of 8%. The plan is fully funded and the participants’ interests are fully vested. The University contributed $1,787,000 for the year ended May 31, 2015. The University also provides postretirement medical benefits to all employees who meet eligibility requirements. Under this plan, the University paid benefits of approximately $171,000 for the year ended May 31, 2015 and had an aggregate accrued liability for postretirement benefits of $4,482,000 at May 31, 2015. During 2014, the plan was amended to offer a new option, effective January 2014, that included lower premiums and higher copays on medical insurance with an annual deductible for prescription drugs. These changes were known to go into effect as of the completion of the plan valuation and resulted in a decrease in the benefit liability in 2014. These changes to the plan continued to have an impact on the valuation and resulted in an additional decrease in the benefit liability in 2015. For additional information regarding the University’s retirement plan and postretirement medical benefits, please see Notes “12” (Retirement Plan) and “13” (Post-Retirement Medical Benefits) of the University’s audited financial statements for the year ended May 31, 2015 included in Appendix B to this Official Statement.
Litigation
From time to time, the University is subject to various lawsuits and other claims arising in the ordinary course of business. The University is not aware of any litigation pending or threatened to which the University is a party wherein any unfavorable decision would materially adversely affect the ability of the University to continue in its normal course of business.
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APPENDIX B
AUDITED FINANCIAL STATEMENTS OF ARCADIA UNIVERSITY FOR THE FISCAL YEARS ENDED MAY 31, 2015 AND 2014
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Arcadia University
Financial Statements
May 31, 2015 and 2014
[Type text] Arcadia University Table of Contents May 31, 2015 and 2014
Page
Independent Auditors’ Report 1
Financial Statements
Statement of Financial Position 3
Statement of Activities 4
Statement of Cash Flows 6
Notes to Financial Statements 7 Independent Auditors’ Report
Board of Trustees Arcadia University
We have audited the accompanying financial statements of Arcadia University (the “University”), which comprise the statement of financial position as of May 31, 2015 and 2014, and the related statements of activities and cash flows for the years then ended, and the related notes to the financial statements.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
1 1 Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Arcadia University as of May 31, 2015 and 2014, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.
Philadelphia, Pennsylvania September 29, 2015
2 Arcadia University Statement of Financial Position May 31, 2015 and 2014 (In Thousands)
2015 2014
Assets
Cash and cash equivalents $ 22,406 $ 18,563 Restricted cash 1,100 132 Investments 63,668 66,913 Student accounts receivable, net 4,086 3,649 Contributions receivable, net 1,204 1,453 Student loans receivable, net 4,548 5,610 Inventories, prepaid expenses and other assets 5,751 7,633 Land, buildings and equipment, net 128,384 120,155 Deposits with bond trustees 14,101 21,586 Trust funds held by others 2,323 2,778
Total assets $ 247,571 $ 248,472
Liabilities and Net Assets
Liabilities Accounts payable $ 3,591 $ 2,425 Accrued expenses 8,111 7,078 Deferred revenue and deposits 13,085 12,161 Current maturities of long-term debt 1,785 1,705 Capital lease obligation 36 60 Annuities payable 356 294 Accrued postretirement benefits 4,482 8,149 Asset retirement obligation 2,633 2,526 Refundable loan funds 773 773 Long-term debt 87,294 89,051
Total liabilities $ 122,146 $ 124,222
Net Assets Unrestricted 96,557 95,410 Temporarily restricted 9,870 10,067 Permanently restricted 18,998 18,773
Total net assets 125,425 124,250
Total liabilities and net assets $ 247,571 $ 248,472
See notes to financial statements 3 Arcadia University Statement of Activities Year Ended May 31, 2015 (In Thousands)
Temporarily Permanently Unrestricted Restricted Restricted Total
Operating Revenues Student tuition and fees, net of financial assistance provided of $43,116 $ 67,768 $ - $ - $ 67,768 Sales and service of auxiliary enterprises, net of financial assistance provided of $3,921 10,758 - - 10,758 Government grants 845 316 - 1,161 Private gifts and grants 997 799 - 1,796 Endowment income 1,654 651 - 2,305 Investment income 196 - - 196 Other sources 653 - - 653 Net assets released from restrictions 1,450 (1,450) - -
Total operating revenues 84,321 316 - 84,637
Operating Expenses Instruction 34,013 - - 34,013 Academic support 7,207 - - 7,207 Student services 15,589 - - 15,589 Institutional support 16,932 - - 16,932 Auxiliary enterprises 9,971 - - 9,971 Research and public service 993 - - 993
Total operating expenses 84,705 - - 84,705
Change in net assets from operations - Arcadia University (384) 316 - (68)
College of Global Studies Student tuition and fees, net of financial assistance provided of $925 42,699 - - 42,699 Endowment income 584 - - 584 Investment income 72 - - 72 Other sources 135 - - 135
Total revenues 43,490 - - 43,490
Operating expenses 42,456 - - 42,456
Change in net assets from operations - College of Global Studies 1,034 - - 1,034
Change in net assets from operating activities 650 316 - 966
Non-Operating Activities Endowment and other gifts - - 694 694 Change in fair value of future foreign exchange contracts (3,238) - - (3,238) Change in fair value of investments 326 (513) (469) (656) Change in benefit obligation 3,409 - - 3,409
Change in net assets from non-operating activities 497 (513) 225 209
Total change in net assets 1,147 (197) 225 1,175
Net Assets, Beginning of Period 95,410 10,067 18,773 124,250
Net Assets, End of Period $ 96,557 $ 9,870 $ 18,998 $ 125,425
See notes to financial statements 4 Arcadia University Statement of Activities Year Ended May 31, 2014 (In Thousands)
Temporarily Permanently Unrestricted Restricted Restricted Total
Operating Revenues Student tuition and fees, net of financial assistance provided of $40,964 $ 63,374 $ - $ - $ 63,374 Sales and service of auxiliary enterprises, net of financial assistance provided of $2,731 11,247 - - 11,247 Government grants 783 263 - 1,046 Private gifts and grants 655 774 - 1,429 Endowment income 1,645 545 - 2,190 Investment income 48 - - 48 Other sources 366 - - 366 Net assets released from restrictions 937 (937) - -
Total operating revenues 79,055 645 - 79,700
Operating Expenses Instruction 34,157 - - 34,157 Academic support 7,581 - - 7,581 Student services 13,466 - - 13,466 Institutional support 13,608 - - 13,608 Auxiliary enterprises 12,568 - - 12,568 Research and public service 529 - - 529
Total operating expenses 81,909 - - 81,909
Change in net assets from operations - Arcadia University (2,854) 645 - (2,209)
College of Global Studies Student tuition and fees, net of financial assistance provided of $529 41,148 - - 41,148 Endowment income 498 - - 498 Investment income 56 - - 56 Other sources 165 - - 165
Total revenues 41,867 - - 41,867
Operating expenses 41,333 - - 41,333
Change in net assets from operations - College of Global Studies 534 - - 534
Change in net assets from operating activities (2,320) 645 - (1,675)
Non-Operating Activities Endowment and other gifts - - 1,539 1,539 Change in fair value of future foreign exchange contracts 2,062 - - 2,062 Change in fair value of investments 6,361 439 499 7,299 Gain on sale of Alliance 668 - - 668 Change in benefit obligation 1,530 - - 1,530
Change in net assets from non-operating activities 10,621 439 2,038 13,098
Total change in net assets 8,301 1,084 2,038 11,423
Net Assets, Beginning of Period 87,109 8,983 16,735 112,827
Net Assets, End of Period $ 95,410 $ 10,067 $ 18,773 $ 124,250
See notes to financial statements 5 Arcadia University Statement of Cash Flows Years Ended May 31, 2015 and 2014 (In Thousands)
2015 2014
Cash Flows from Operating Activities Change in net assets $ 1,175 $ 11,423 Adjustments to reconcile change in net assets to net cash provided by operating activities: Depreciation and amortization 4,021 6,822 Provision for loss on accounts receivable 280 455 Contributions restricted for long-term investments (694) (1,539) Contributions restricted for long-lived assets (163) (102) Permanently restricted loss (gain) on investments 469 (499) Change in fair value of investments and foreign exchange contracts 3,425 (7,526) Gain on investment in joint venture - (668) Change in valuation of accrued postretirement benefits (3,409) (1,530) Change in asset retirement obligation 107 147 (Increase) decrease in: Restricted cash (968) 1,541 Student accounts receivable (717) (1,067) Contributions receivable 249 10 Student loans receivable 1,062 (194) Inventories, prepaid expenses and other assets 1,882 (1,902) Increase (decrease) in: Accounts payable and accrued expenses 2,199 361 Deferred revenue and student deposits 924 1,241 Annuities payable 62 46 Accrued postretirement benefits (258) 358
Net cash provided by operating activities 9,646 7,377
Cash Flows from Investing Activities Purchase of land, buildings and equipment (12,222) (7,207) Proceeds from sale of investments 590 2,177 Purchase of investments (784) (1,570) Use of deposits with bond trustees 13,841 12,015 Additions to deposits with bond trustees (6,356) (22,044)
Net cash used in investing activities (4,931) (16,629)
Cash Flows from Financing Activities Proceeds from issuance of debt - 20,000 Principal payments on long-term debt (1,705) (6,305) Proceeds from line of credit 2,500 - Payment on line of credit (2,500) (1,500) Payments on capital lease obligation (24) (29) Contributions restricted for long-term investment 694 1,539 Contributions restricted for long-lived assets 163 102
Net cash (used in) provided by financing activities (872) 13,807
Net increase in cash and cash equivalents 3,843 4,555
Cash and Cash Equivalents, Beginning 18,563 14,008
Cash and Cash Equivalents, Ending $ 22,406 $ 18,563
Supplemental Disclosure of Noncash Financing Activities Interest paid $ 4,691 $ 4,256
See notes to financial statements 6 Arcadia University Notes to Financial Statements May 31, 2015 and 2014
1. Organization
Arcadia University (the “University”), founded in 1853, offers a wide array of liberal arts and professional programs. The University offers high quality, undergraduate degree programs in more than 30 fields of study, as well as graduate degrees and certificates of advanced study. The University also offers one of the largest campus-based study abroad programs in the country. Through the College of Global Studies, students may participate in any of more than 130 programs in 15 foreign countries.
2. Summary of Significant Accounting Policies
Basis of Presentation
The University’s financial statements have been prepared on the accrual basis of accounting in conformity with accounting principles generally accepted in the United States of America. The University reports total assets, liabilities and net assets in a statement of financial position; reports the change in net assets in a statement of activities; and reports the sources and uses of cash and cash equivalents in a statement of cash flows.
Net assets and revenues, gains, expenses and losses are classified as unrestricted, temporarily restricted or permanently restricted based on the existence or absence of donor- imposed restrictions as follows:
Permanently restricted - Net assets subject to donor-imposed stipulations that are maintained permanently by the University. Generally, the donors of these assets permit the University to use all or part of the income earned on these assets. Such assets primarily include the University’s permanent endowment funds.
Temporarily restricted - Net assets whose use by the University is subject to donor- imposed stipulations that can be fulfilled by actions of the University pursuant to those stipulations or that expire by the passage of time. Contributions received with donor imposed restrictions that are met in the same year as received are recorded as temporarily restricted revenue and subsequently released from restriction.
Unrestricted - Net assets that are not subject to donor-imposed stipulations. Unrestricted net assets may be designated for specific purposes by action of the Board of Trustees.
Cash and Cash Equivalents
The University treats all highly liquid investments with an average maturity of 90 days or less at the time of purchase as cash equivalents. These investments include cash, foreign currencies, certificates of deposit and money market funds. As of May 31, 2015 and 2014, the University held approximately $4,936,000 and $4,688,000 in foreign currencies, respectively.
Restricted Cash
Restricted cash includes funds legally restricted for certain construction projects and funds held on tenant deposits.
7 Arcadia University Notes to Financial Statements May 31, 2015 and 2014
Concentration of Credit Risk
Financial instruments of the University that expose it to concentration of credit risk consist primarily of cash and cash equivalents, trust funds held by others and investments. These funds are held in various high quality financial instruments managed by University personnel or outside advisors. The University believes that concentration of credit risk is limited with respect to its cash and cash equivalents, investments and trust funds held by others.
Other financial instruments that potentially subject the University to concentrations of credit risk are receivables. Receivables result primarily from tuition and fees, student loans and contributions. Concentrations of credit risk with respect to contributions receivable are limited due to the composition of the University's contributor base.
Investments
The University accounts for its investments in marketable securities at their fair value. Adjustments to reflect increases or decreases in market value, referred to as change in market value of investments, are reported in the statement of activities.
Realized gains and losses arising from the sale of investments and ordinary income from investments are reported as changes in unrestricted net assets unless their use is temporarily or permanently restricted by explicit donor imposed stipulations.
Equity and fixed income mutual funds are valued at quoted market prices. The University also invests in a variety of alternative investments. Alternative investments include hedge funds, limited partnership funds, private equity and other funds. In the absence of readily determinable fair value, fair value is determined based on a review of audited financial statements of the underlying funds, when available, and other information provided by fund managers, and research performed by the University’s management. Investments in such funds do carry certain risks including lack of regulatory oversight, interest rate risk and market risk. Due to the level of risk associated with these investments and the level of uncertainty related to changes in the fair value of investment securities, it is at least reasonably possible that changes in risk factors in the near term would materially affect the amounts reported in the statement of financial position.
At May 31, 2015 and 2014, the University had remaining capital commitments on alternative investments of $2,754,000 and $748,000, respectively.
Receivables
Student accounts receivable include all current accounts receivable related to student transactions net of allowances of $6,666,000 and $6,386,000 as of May 31, 2015 and 2014, respectively. The allowance for doubtful accounts is provided based upon management’s judgment including such factors as prior collection history and type of receivable. The University writes-off receivables when they become uncollectible, and payments subsequently received on such receivables are credited to the allowance for doubtful accounts. All accounts over one year old have been written off or fully reserved.
Contributions receivable include all unconditional promises to give less management’s estimate of an allowance to reflect their net realizable value.
8 Arcadia University Notes to Financial Statements May 31, 2015 and 2014
The student loans receivable represents loans to students funded by advances to the University by the federal government under the Federal Perkins Loan Program (the “Program”). Currently, eligible students receive loan funds under this program at a fixed rate of five percent. Funding for the program comes from prior program loans already in repayment, federally contributed funds and institutionally contributed funds. The University acts as custodian of all Perkins federal student program loan funds and loans receivable. In the event that the University ceases to participate in the Program, the amounts are refundable to the federal government. Such funds may be re-loaned by the University after collection, but in the event that the University no longer participates in the Program, the amounts are refundable to the federal government. The federal government’s portion of these funds at May 31, 2015 and 2014 was $773,000 and $773,000, respectively. As of May 31, 2015 and 2014, $703,000 and $733,000 was carried as student loans receivable related to the Program, respectively.
The prescribed practices for the Program do not provide for accrual of interest on student loans receivable. Accordingly, interest on loans is recorded as received and is reinvested to support additional loans; uncollectible loans are not recognized until the loans are canceled or written-off in conformity with the Program’s requirements. The impact of recording interest income on a cash basis is not considered significant. In addition, the credit quality of the student is not evaluated after the initial approval and calculation of the loans. Delinquent loans and the allowance for losses on loans receivable are reviewed by management, but are not material to the overall financial statements.
The University participates in the Federal Direct Loan Program. Funds owed to Arcadia from the government as a result of the Direct Loan program were $3,845,000 and $4,877,000 at May 31, 2015 and 2014, respectively.
Revenue Recognition
Tuition revenue is recorded at established rates net of financial assistance provided directly by the University. The University recognizes tuition revenue in the academic period that it is earned. Any payments received in advance for the subsequent year are classified as deferred revenue in the statement of financial position.
The University records unconditional promises to give as receivables. The University reports gifts of cash and other assets as restricted support if they are received with donor stipulations that limit the use of the donated assets. When a donor restriction expires, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statement of activities as net assets released from restrictions.
The University reports gifts of land, buildings and equipment as unrestricted support unless explicit donor stipulations specify how the donated assets must be used. Gifts of long-lived assets with explicit restrictions that specify how the assets are to be used and gifts of cash or other assets that must be used to acquire long-lived assets are reported as restricted support. Absent explicit donor stipulations about how long those long-lived assets must be maintained, the University reports expirations of donor restrictions when the donated or acquired long-lived assets are placed in service.
9 Arcadia University Notes to Financial Statements May 31, 2015 and 2014
Charitable Gift Annuities
The University has entered into charitable gift annuity agreements. Revenue is recognized pursuant to the annuity agreements based on the fair value of the assets contributed less a liability for the present value of the payments expected to be made to the beneficiaries.
The fair value of assets for the charitable gift annuities was $833,000 and $710,000 at May 31, 2015 and 2014, respectively, and is included in investments in the statement of financial position. The liability associated with the annuities was $356,000 and $294,000 at May 31, 2015 and 2014, respectively.
Inventories
Inventories are valued at cost using the average cost method. The University’s inventories consist of office and physical plant supplies.
Deposits with Bond Trustees
Deposits with bond trustees consist primarily of cash and cash equivalents, U.S. government securities and other fixed income funds which are held by a trustee in fulfillment of debt related indentures. These funds are restricted to future debt service or projects as defined by the debt indenture.
Land, Buildings and Equipment
Land, buildings and equipment are stated at cost less accumulated depreciation. Expenditures for new construction, major renewals and replacements and equipment costing over $5,000 are capitalized. Land, buildings and equipment are depreciated over their estimated useful lives using the straight-line method. In fiscal year 2015, the University made a change to its estimated useful lives for capital assets based on engineering and useful life studies. Useful lives changed from 15 to 20 years for land improvements, from 15-50 years to 20-87 years for buildings and improvements, and from 3-7 years to 5-10 years for furniture and equipment. Useful lives for library holdings and vehicles remained the same at 10 years. Upon retirement or disposition of the land, buildings and equipment, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in the statement of activities.
Derivative Financial Instruments
The functional currency for the majority of the University’s international programs is the applicable local currency. The University sets prices for its international programs in U.S. dollars 9 to 18 months prior to the program start date. The University is therefore subject to a significant amount of foreign exchange risk. In order to offset this exchange risk, it is the University’s practice to purchase forward foreign exchange contracts with major banks. No cash is exchanged at the time a foreign exchange contract commitment is made; however, the contract implies an irrevocable promise by the University to purchase a specified amount of foreign currency at a specific price. Generally, these contracts are held to maturity.
10 Arcadia University Notes to Financial Statements May 31, 2015 and 2014
The University has determined that its use of forward foreign exchange contracts qualifies as a future-hedging instrument, and as such, is measured at fair value and recognized as either an asset or liability on the statement of financial position and that changes in the fair value of derivative instruments are recognized as changes in fair value on the statement of activities. Due to the timing between the fiscal year end close and the maturity of the contracts, the University recorded a cumulative (loss) gain adjustment of $(3,238,000) and $2,062,000 to record the fair value of outstanding forward foreign exchange contracts at May 31, 2015 and 2014, respectively.
At May 31, 2015 and 2014, the University held $37,390,000 and $29,119,000 in forward foreign exchange contracts with fair values of $35,051,000 and $30,018,000, respectively. At May 31, 2015 and 2014, the accumulated changes in fair value of the future foreign exchange contracts of $(2,339,000) and $899,000, respectively, are included within investments on the statement of financial position. The change in fair value is recorded as a non-operating gain or loss in the statement of activities.
Fund Raising Expenses
For the years ended May 31, 2015 and 2014, direct expenses for fund raising were $1,191,000 and $1,535,000, respectively.
Non-Operating Activities
The University considers endowment gifts, net unrealized and realized gains and losses on sale of investments, endowment income in excess or deficiency of its 5% spending policy, changes in the fair value of forward foreign exchange contracts, changes in the postretirement medical benefits obligation and unusual and other, non-recurring transactions to be non-operating activities.
Foreign Currency Translation
The translation from the applicable foreign currencies to U.S. dollars is performed for statement of financial position accounts using current exchange rates in effect at the statement of financial position date and for revenue and expense accounts using a weighted average exchange rate for the years ended May 31, 2015 and 2014.
Allocation of Certain Expenses
The statement of activities presents expenses by functional classification. Operation and maintenance of physical plant and related interest, depreciation, and accretion are allocated based on square footage.
Income Taxes
The University is exempt from federal income taxes under Section 501(c)(3) of the Internal Revenue Code. Accordingly, no provision for income taxes is made in the financial statements.
The University follows the Financial Accounting Standards Board (“FASB”) guidance that requires a tax position to be recognized or derecognized based on a “more likely than not” threshold. This applies to positions taken or expected to be taken in a tax return. The University does not believe its financial statements include any uncertain tax positions. 11 Arcadia University Notes to Financial Statements May 31, 2015 and 2014
The University’s policy is to recognize interest related to unrecognized tax benefits in interest expense and penalties in operating expenses. No interest or penalties were recognized in 2015.
The University’s federal Exempt Organization Business Income Tax Returns for 2015, 2014, and 2013 remain subject to examination by the Internal Revenue Service.
Use of Estimates
The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Subsequent Events
The University evaluated subsequent events for recognition or disclosure through September 29, 2015, the date the financial statements were issued.
New Accounting Standards
In April 2013, the Financial Accounting Standards Board (“FASB”) issued ASU 2013-06, Not-for Profit Entities (Topic 958): Services Received from Personnel of an Affiliate. This amendment requires a recipient not-for-profit entity to recognize all services received from personnel of an affiliate that directly benefit the recipient not-for-profit entity. Such services will be measured at the cost recognized by the affiliate for the personnel providing those services. However, if this measurement significantly overstates or understates the value of the service received, the recipient non-for-profit entity may elect to recognize services received at either the cost recognized by the affiliate for the personnel providing that service or the fair value of that service. This update is effective for the University’s fiscal year beginning June 1, 2014. The adoption of this ASU did not have a significant impact on the University’s financial position or results of operations.
In April 2015, the FASB issued ASU 2015-03, Interest – Imputation of Interest (Topic 835- 30): Simplifying the Presentation of Debt Issuance Costs. This amendment requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. This update is effective for the University’s fiscal year beginning June 1, 2016; however, the University chose to adopt the guidance for the fiscal year beginning June 1, 2014. The guidance is retrospective and the adoption of this ASU did not have a significant impact on the University’s financial position or results of operations. The adoption of this ASU caused the Inventories, prepaid expenses and other assets balance previously reported in the May 31, 2014 statement of financial position to decrease by $779,000 and the Long-term debt balance to decrease by $779,000.
12 Arcadia University Notes to Financial Statements May 31, 2015 and 2014
In May 2015, the FASB issued ASU 2015-07 Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent). This amendment removes the requirement to categorize all investments for which fair value is measured using the net asset value per share practical expedient from the fair value hierarchy. This update is effective for the University’s fiscal year beginning July 1, 2016. The University is currently determining its implementation approach and assessing the impact this guidance may have on its financial position or results from operations.
In May 2014, the FASB issued ASU 2014-09 Revenue from Contracts with Customers. This amendment updates the core principles that the University should apply in the recognition of revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This update is effective for the University’s fiscal year beginning July 1, 2019. The University will be determining its implementation approach and assessing the impact this guidance may have on its financial position.
In August 2015, the FASB issued ASU 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. This amendment requires that the University’s management evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued in connection with preparing the financial statements. This update is effective for the University’s fiscal year beginning June 1, 2017. The adoption of this ASU is not expected to have a significant impact on the University’s financial position or results of operations.
3. Investments
The University’s investments were as follows at May 31:
2015 2014 (In Thousands)
Mutual funds: Equity funds $ 35,444 $ 36,816 Fixed income funds 16,055 14,047
Total mutual funds 51,499 50,863
Other investments 3,135 3,089 Alternative investments 11,373 12,062 Forward foreign exchange contracts (2,339) 899
Total $ 63,668 $ 66,913
Investment management and custodial fees are netted against investment returns and were approximately $269,000 and $303,000 for the years ended May 31, 2015 and 2014, respectively.
13 Arcadia University Notes to Financial Statements May 31, 2015 and 2014
4. Contributions Receivable
Contributions receivable include all unconditional promises to give and are measured at fair value on a non-recurring basis. Contributions that are expected to be collected within one year are recorded at net realizable value. Contributions that are expected to be collected in future years are recorded at the present value of their estimated future cash flows with a discount rate adjusted for market conditions to arrive at fair value. Amortization of the discounts is included in contribution revenue. Conditional promises to give are not included as support until the conditions are substantially met.
Included in contributions receivable are the following unconditional promises at May 31:
2015 2014 (In Thousands)
Unconditional promises expected within 1 year $ 839 $ 1,181 Unconditional promises expected between 1-5 years 626 558
Total 1,465 1,739
Less: Discount 41 26 Allowance for uncollectibles 220 260
Total 261 286
Unconditional promises to give net of unamortized discount and allowance for uncollectible amounts $ 1,204 $ 1,453
5. Land, Buildings and Equipment
Land, buildings and equipment consisted of the following at May 31:
2015 2014 (In Thousands)
Land and land improvements $ 13,420 $ 16,108 Buildings and improvements 151,008 141,659 Furniture and equipment 40,040 37,449 Library holdings 3,707 3,649 Construction in progress 8,072 5,159
Total 216,247 204,024
Less accumulated depreciation 87,863 83,869
Total $ 128,384 $ 120,155
14 Arcadia University Notes to Financial Statements May 31, 2015 and 2014
The University incurred depreciation expense of $3,993,000 and $6,739,000 during the years ended May 31, 2015 and 2014, respectively.
6. Asset Retirement Obligation The University recognizes the cost associated with the eventual remediation and abatement of asbestos and other regulated substances located within the construction of the University’s land, buildings and equipment. The cost of the abatement was estimated utilizing an externally conducted survey for asbestos identification and contractor estimates for remediation integrated with management’s future remediation plans. The University recorded an asset retirement obligation liability of $2,633,000 and $2,526,000 at May 31, 2015 and 2014, respectively. Included in the balance for accretion of interest related to conditional asset retirement obligations recognized is $107,000 and $147,000 for the years ended May 31, 2015 and 2014, respectively. There were $23,000 and $24,000 in actual remediation and abatement costs for the years ended May 31, 2015 and 2014, respectively.
7. Long-Term Debt
Long-term debt consisted of the following at May 31:
2015 Interest Rate Principal Percent Term Balance (In Thousands) University revenue bonds: Fixed rate issues, Montgomery County Higher Education and Health Authority: Series 2006 4.00-5.00 2006-2036 $ 36,345 Series 2006 (2nd Series) 4.00-5.00 2006-2027 11,265 Series 2010 4.80-5.60 2010-2040 23,000 Series 2013 2.00-5.75 2013-2040 19,220
Total debt 89,830
Current maturities of long-term debt 1,785
Total long-term debt 88,045
Debt issuance premium 771 Unamortized debt issuance cost (1,522)
Total long-term debt, net $ 87,294
15 Arcadia University Notes to Financial Statements May 31, 2015 and 2014
2014 Interest Rate Principal Percent Term Balance (In Thousands) University revenue bonds: Fixed rate issues, Montgomery County Higher Education and Health Authority: Series 2006 4.00-5.00 2006-2036 $ 37,585 Series 2006 (2nd Series) 4.00-5.00 2006-2027 11,320 Series 2010 4.80-5.60 2010-2040 23,000 Series 2013 2.00-5.75 2013-2040 19,630
Total debt 91,535
Current maturities of long-term debt 1,705
Total long-term debt 89,830
Debt issuance premium 819 Unamortized debt issuance cost (1,598)
Total long-term debt, net $ 89,051
In December 2013, the University issued $20,000,000 of Montgomery County Higher Education and Health Authority Revenue Bonds, Series of 2013 (2013 Bonds). The 2013 Bonds were issued to finance the costs of various capital projects of the University, to refund the Pennsylvania Higher Educational Facilities Authority’s Revenue Bonds Series 2001, and to pay certain costs of issuance.
New capital projects eligible for funding under the 2013 Bonds include the following: (a) the construction and equipping of a new University Health Science Facility, an approximately 10,000 square foot addition to the University’s Science Facilities, construction of an approximately 15,000 square foot building for the arts, construction of an approximately 3,000 square foot maintenance building, construction of fire roads, bike paths, bridges and walk ways, sidewalks and curbing, construction of a NCAA compliant baseball facility and other athletic field improvements, construction, improvement, equipping, renovation and furnishing of various University facilities and property, including, but not limited to Boyer Hall Labs, Murphy Hall, Larsen Hall, Kaname House and other buildings, various other University student housing facilities, classroom facilities, laboratory facilities, library facilities, athletic facilities, student service facilities, administrative services facilities and other capital projects to benefit the University.
In May 2010, the University issued $23,000,000 of Montgomery County Higher Education and Health Authority Revenue Bonds, Series of 2010 (2010 Bonds). The 2010 Bonds were issued to finance the costs of various capital projects of the University, to fund a deposit to a debt service reserve fund for the Series 2010 Bonds, and to pay certain costs of issuance.
16 Arcadia University Notes to Financial Statements May 31, 2015 and 2014
Capital projects eligible for funding under the 2010 Bonds include the following: (a) the construction and equipping of a new University student center, an approximately 48,000 square foot building to be located adjacent to the existing Kuch Athletic Center, providing spaces for dining, student clubs and activities, meetings and conferences, art exhibits, fitness activities and storage; (b) renovations and improvements to approximately 15,000 square feet of the Kuch Athletic Center to accommodate integration with the new University student center; and (c) other miscellaneous campus improvements, including renovations to the new athletic field along Easton Road, additional parking and parking improvements, classroom and science laboratory renovations, general campus landscaping improvements, and other miscellaneous capital additions, renovations, and improvements, including purchases of capital equipment.
In February 2006, the University issued $45,665,000 of Montgomery County Higher Education and Health Authority Revenue Bonds, Series of 2006 (2006 Bonds). The 2006 Bonds were issued to advance refund the outstanding Montgomery County Higher Education and Health Authority Revenue Bonds, Series of 1996 (1996 Bonds) and to provide approximately $28 million for new capital projects and to pay for costs related to issuance. The 2006 Bonds maturing on or after April 1, 2017 are subject to optional redemption by the Authority, as directed by the University, in whole or part any time after April 1, 2016 at a redemption price of 100% of the principal amount.
In April 2006, the University issued $11,695,000 of Montgomery County Higher Education and Health Authority Revenue Bonds, Second Series of 2006 (2006 Second Series Bonds). The 2006 Second Series Bonds were issued to advance refund the outstanding Montgomery County Higher Education and Health Authority Revenue Bonds, Series of 1999 (1999 Bonds). The 2006 Second Series Bonds maturing on April 1, 2027 are subject to optional redemption by the Authority, as directed by the University, in whole or part any time after April 1, 2016 at a redemption price of 100% of the principal amount.
Each of the Montgomery County Higher Education and Health Authority revenue bonds provide for the University to pledge its tuition revenues as collateral for the bonds.
The terms of the bond indentures contain, among other provisions, requirements for maintaining certain financial ratios, including liquidity and debt service coverage.
Aggregate principal payments on bonds payable for each of the next five fiscal years subsequent to May 31, 2015 and 2014 are as follows (in thousands):
Years ending May 31: 2016 $1,785 2017 1,865 2018 1,935 2019 2,015 2020 2,115 Thereafter 80,115
Total $ 89,830
The University incurred interest expense of $4,465,000 and $4,326,000 for the years ended May 31, 2015 and 2014, respectively.
17 Arcadia University Notes to Financial Statements May 31, 2015 and 2014
8. Line of Credit
In May 2013, the University obtained an unsecured $5,000,000 line of credit with a financial institution at a rate equal to the higher of three percent or LIBOR rate plus two hundred basis points (3.2% at May 31, 2015). On April 15, 2015, the Line of Credit Note and Loan Agreement was amended to reduce the Line of Credit to $3,500,000 and to renew it through December 31, 2015.
The University borrowed $2,500,000 and $1,500,000 against the line of credit in fiscal years 2015 and 2014 respectively. The outstanding balance in both years was fully repaid during the respective fiscal year.
9. Temporarily and Permanently Restricted Net Assets
Temporarily restricted net assets of $9,870,000 and $10,067,000, as of May 31, 2015 and 2014, respectively, were available for the purposes of instruction, scholarships, capital expenditures and accumulated amounts under the investment spending policy.
Permanently restricted net assets of $18,998,000 and $18,773,000 as of May 31, 2015 and 2014, respectively, consisted of the principal of endowment gifts and the realized and unrealized gains and losses associated with endowment gifts that were permanently restricted to the endowment by the donor. Income from permanently restricted net assets is restricted to instruction, scholarships or activities that support the mission of the University.
10. Endowments
As required by accounting principles generally accepted in the United States of America, net assets associated with endowment funds, including funds designated by the Board of Trustees to function as endowments, are classified and reported based on the existence or absence of donor-imposed restrictions.
The University’s endowment consists of a portfolio of active and passive managed funds established to provide both a source of operating funds as well as long-term financial stability. The endowment includes both donor-restricted endowment funds and funds designated by the Board of Trustees.
18 Arcadia University Notes to Financial Statements May 31, 2015 and 2014
The University’s policy requires the preservation of the fair value of the original gift as of the gift date of the donor-restricted endowment funds absent explicit donor stipulations to the contrary. As a result, the University classifies as permanently restricted net assets (a) the original value of gifts donated to the permanent endowment, (b) the original value of subsequent gifts to the permanent endowment, and (c) accumulations to the permanent endowment made in accordance with the direction of the applicable donor gift instrument at the time the accumulation is added to the fund. This is regarded as the “historic dollar value” of the endowed fund. The remaining portion of the donor-restricted endowment fund that is not classified in permanently restricted net assets and is regarded as “net appreciation” is classified as temporarily restricted net assets until those amounts are appropriated for expenditure by the University in a manner consistent with the University’s spending policy.
Funds with Deficiencies
From time to time, the fair value of assets associated with individual donor restricted endowment funds may fall below the “historic dollar value”. Deficiencies of this nature are reported by a charge to unrestricted net assets and a corresponding increase to temporarily restricted net assets. These cumulative charges were approximately $411,000 as of May 31, 2015. These deficiencies resulted from unfavorable market fluctuations that occurred shortly after the investment of new permanently restricted contributions. Over time these may reverse due to appreciation of underlying investments. During the fiscal year ending May 31, 2015, unrestricted net assets of $136,000 were restored for gains related to cumulative endowment fund deficiencies.
Endowment Investment Policy
The University has adopted an investment policy that is intended to provide a predictable stream of funding to programs from its endowment while seeking to maintain the purchasing power of the endowment assets. The University’s Endowment Fund (the Fund) consists of cash, securities, and other investments. The use of the assets of the Fund may be permanently restricted, temporarily restricted, or unrestricted. The Fund may receive donor- restricted gifts and bequests to provide a permanent endowment, which is to provide a permanent source of income, or a term endowment, which is to provide income for a specified period. The principal of a permanent endowment must be maintained permanently and is classified as permanently restricted net assets. The principal of a term endowment must be maintained for a specified term and is classified as temporarily restricted net assets. The University’s Board of Trustees may earmark a portion of its unrestricted net assets as board-designated endowment to be invested to provide income for a long but unspecified period. The principal of a board-designated endowment, which results from an internal designation, is not donor restricted and is classified as unrestricted net assets.
The Board of Trustees has stipulated that all bequests to the University, not otherwise designated, will be added to the Fund.
19 Arcadia University Notes to Financial Statements May 31, 2015 and 2014
Endowment Spending Policy
The University has adopted a spending policy seeking a total percentage return from assets. As defined under section 5548 (c) of the Pennsylvania Non-Profit Corporation law, the University will recognize as endowment income a seven percent return on assets based upon the three-year average market value of the Fund as of the close of the current fiscal year.
On an annual basis, the University will set a spending policy for budgeting purposes. The spending rate will be a percentage of assets based upon the three-year average fair value of the fund as of the close of the calendar year preceding its fiscal year. The spending rate should not exceed the recognized endowment income (7%). All returns, regardless of source, above the spending rate will be retained to enhance growth of the fund. For the years ended May 31, 2015 and 2014, the University recognized a five percent spending rate for budgeting purposes.
Strategies Employed for Achieving Objectives
To satisfy its goal of supporting the mission of the University through growth and by providing a predictable level of endowment income to the annual operating budget, rate-of- return objectives are to earn an average annual total real rate of return of at least five to six percent, as measured over a three-year to five-year market period, and to outperform selected weighted market indices. Funds are invested through active and passive fund managers with equity investments, fixed investments, which are predominately index funds, and alternative investments. Equity investments include common stocks, which are diversified in terms of industry, capital size, and nation of origin. Non-traditional investments include private equity, venture capital, and real estate. Fixed investments include cash, cash equivalents, and bonds. Cash and cash equivalents are maintained at a minimum to provide the Fund requisite liquidity. Target allocations for investments are 25% fixed income, 65% equity, and 10% non-traditional. Periodic re-balancing is to occur to maintain the target ranges. Investment returns are measured quarterly. Stock returns are compared against the Standard & Poor’s 500 Index and other standard equity indices. Bonds are evaluated using Barclay’s Capital Aggregate Bond Index and other standard fixed income indices. The total portfolio is compared to the consumer price index plus 5%.
20 Arcadia University Notes to Financial Statements May 31, 2015 and 2014
Endowment Fund Activity
May 31, 2015 Temporarily Permanently Unrestricted Restricted Restricted Total
Donor restricted endowment funds $ - $666,000 $18,998,000 $19,664,000 Board-designated funds 48,063,000 - - 48,063,000
Total $ 48,063,000 $ 666,000 $ 18,998,000 $ 67,727,000
Net assets, beginning of year $ 48,271,000 $ 1,834,000 $ 18,773,000 $ 68,878,000
Investment return: Investment income 1,781,000 132,000 - 1,913,000 Net realized gains 1,505,000 - - 1,505,000 Net unrealized gains (1,434,000) (513,000) (469,000) (2,416,000)
Net investment gain 1,852,000 (381,000) (469,000) 1,002,000
Contributions 42,000 - 694,000 736,000
Appropriation of endowment assets for operations (draw) (2,238,000) (651,000) - (2,889,000)
Net, deficiencies in historical values 136,000 (136,000) - -
Total $ 48,063,000 $ 666,000 $ 18,998,000 $ 67,727,000
21 Arcadia University Notes to Financial Statements May 31, 2015 and 2014
May 31, 2014 Temporarily Permanently Unrestricted Restricted Restricted Total
Donor restricted endowment funds $ - $1,834,000 $18,773,000 $20,607,000 Board-designated funds 48,271,000 - - 48,271,000
Total $ 48,271,000 $ 1,834,000 $ 18,773,000 $ 68,878,000
Net assets, beginning of year $ 40,670,000 $ 1,821,000 $ 16,735,000 $ 59,226,000
Investment return: Investment income 1,823,000 119,000 - 1,942,000 Net realized gains 358,000 - - 358,000 Net unrealized gains 7,010,000 439,000 499,000 7,948,000
Net investment gain 9,191,000 558,000 499,000 10,248,000
Contributions 553,000 - 1,539,000 2,092,000
Appropriation of endowment assets for operations (draw) (2,143,000) (545,000) - (2,688,000)
Total $ 48,271,000 $ 1,834,000 $ 18,773,000 $ 68,878,000
11. Capital Projects
In the summer of 2014, the University began a project to install an elevator in the Grey Towers Castle. It also renovated the second floor of the Castle to accommodate new offices for the President and Provost of the University. Funding for this project came from the Montgomery County Higher Education and Health Authority Revenue Bonds, Series of 2013. Both the elevator and offices were completed and brought online in December 2014.
In the summer of 2014, the University began a project to renovate the Stout House located at 2550 Church Road. The property will be used to house University Advancement. Funding for this project is coming from the Montgomery County Higher Education and Health Authority Revenue Bonds, Series of 2013. This project is expected to be completed by the fall of 2015. The University is also utilizing the grounds of the Stout House property to house a new Multip- Purpose Building. This project is expected to be completed by the fall of 2015. Commitments related to these projects as of the year end totaled $724,000.
There were no other major capital projects started or completed in the year ended May 31, 2015.
22 Arcadia University Notes to Financial Statements May 31, 2015 and 2014
12. Retirement Plan
All full-time employees of the University are eligible to participate in the University’s defined contribution retirement plan. Prior to January 1, 2015, covered employees could choose between either Teachers Insurance and Annuity Association (TIAA-CREF) or the Vanguard Group as their plan trustee. As of January 1, 2015, the University’s Plan moved to a single provider structure with TIAA-CREF as the plan trustee. All new contributions and new participants will be with TIAA-CREF. The TIAA-CREF single provider plan is inclusive of investments from other investment firms including The Vanguard Group and Dodge and Cox. The University’s matching contribution is 100% of the first 6.49% of employee contributions. Employee contributions of 6.5% and greater are matched by a University contribution of 8.0%. The plan is fully funded and the participants’ interest is fully vested. The University contributed $1,787,000 and $1,897,000 to the plans during the year ended May 31, 2015 and 2014, respectively.
13. Postretirement Medical Benefits
The University provides postretirement medical benefits to all employees who meet certain eligibility requirements. The University accrues for expected medical and other postretirement benefits over the years that the employees render the necessary service. Contributions to the plan are equal to benefit payments.
The University recognizes the funded status of its defined benefit postretirement plans in the statement of financial position. The University recorded additions to net assets of $3,409,000 and $1,530,000 for the years ended May 31, 2015 and 2014, respectively.
Reconciliation of Benefit Obligation, Plan Assets and Funded Status
2015 2014 (In Thousands)
Change in benefit obligation: Benefit obligation, beginning of year $ 8,149 $ 9,321 Service cost 179 332 Interest cost 189 357 Change in plan - (2,981) Actuarial (gain) loss (3,864) 1,409 Benefits paid (171) (289) Benefit obligation, end of year $ 4,482 $ 8,149 Change in plan assets: Fair value of plan assets, beginning of year $ - $ - Employer contribution 171 289 Benefits paid (171) (289) Fair value of plan assets, end of year $ - $ - Funded status $ (4,482) $ (8,149) Accrued benefit cost $ (4,482) $ (8,149)
23 Arcadia University Notes to Financial Statements May 31, 2015 and 2014
During 2014, the plan was amended to offer a new option, to be effective January 2014, that includes lower premiums and higher copays on medical with an annual deductible for prescription drugs. These changes were known to go into effect as of the completion of the valuation and resulted in a decrease in the benefit liability in 2014. These changes to the plan continued to have an impact on the valuation and resulted in an additional decrease in the benefit liability in 2015.
Amounts Recognized in Accumulated Unrestricted Net Assets
2015 2014 (In Thousands)
Net loss $ 1,830 $ 5,856 Prior service credit (2,704) (3,321)
Accrued benefit cost $ (874) $ 2,535
Weighted Average Assumptions Used to Determine Benefit Obligations at Year-End
2015 2014
Discount rate 4.5 % 4.5 % Medical cost trend: Increase from current to next fiscal year 7.0 % 7.0 % Ultimate rate of increase 5.0 % 5.0 % Fiscal year that the ultimate rate is attained 2023 2023 Prescription drug cost trend: Increase from current to next fiscal year 7.0 % 7.0 % Ultimate rate of increase 5.0 % 5.0 % Fiscal year that the ultimate rate is attained 2023 2023
Weighted-Average Assumptions Used to Determine Net Periodic Benefit Cost
2015 2014
Discount rate 4.5 % 5.0 % Expected return on assets N/A N/A Rate of compensation increases N/A N/A Healthcare cost trend: Increase from current to next fiscal year 7.0 % 7.0 % Ultimate rate of increase 5.0 % 5.0 % Fiscal year that the ultimate rate is attained 2023 2018 Prescription drug cost trend: Increase from current to next fiscal year 7.0 % 7.0 % Ultimate rate of increase 5.0 % 5.0 % Fiscal year that the ultimate rate is attained 2023 2018
24 Arcadia University Notes to Financial Statements May 31, 2015 and 2014
Net Periodic Postretirement Benefit Cost
2015 2014 (In Thousands)
Service cost $ 179 $ 332 Interest cost 189 357 Amortization of prior service credit (617) (447) Amortization of net actuarial loss 162 405
Net periodic postretirement benefit cost $ (87) $ 647
Estimated Amounts to be Amortized from Accumulated Unrestricted Net Assets into Net Periodic Benefit Cost over the Next Fiscal Year
2015 2014 (In Thousands)
Net loss $ 147 $ 520 Prior service credit (617) (617)
Estimated Future Benefit Payments The benefit payments, which reflect expected future service, as appropriate, are expected to be paid as follows (in thousands):
2016 $ 145 2017 161 2018 179 2019 194 2020 207 2021-2024 1,254
Contributions expected to be paid to the plan in the next fiscal year $ 145
Healthcare Cost Trend Rate
Assumed medical cost trend rate for the next year 7.0% General description of the direction and pattern of change in the 6.5% for FY16 assumed medical trend rates thereafter and FY17, and so forth to an ultimate trend of 5.0% Ultimate trend rate and when that rate is expected to be achieved 5.0% Assumed prescription drug cost trend rate for the next year 7.0% General description of the direction and pattern of change in the 6.5% for FY16 assumed prescription drug cost trend rates thereafter and FY17, and so forth to an ultimate trend of 5.0% Ultimate trend rate and when that rate is expected to be achieved 5.0%
25 Arcadia University Notes to Financial Statements May 31, 2015 and 2014
One percentage point increase: Effect on total service and interest cost $ 74 Effect on end of year postretirement benefit obligations 733 One percentage point decrease: Effect on total service and interest cost (58) Effect on end of year postretirement benefit obligations (597)
ASC 220-10 Disclosures for Change in Accumulated Unrestricted Net Assets at May 31
2015 2014 (In Thousands)
Prior service cost from plan amendment during the year $ - $(2,981) Less: amortizations of all prior service costs included in net periodic cost (617) (447)
Net prior service cost arising during the year 617 (2,534)
Net (gain)/loss arising during the year (3,864) 1,409 Amortization of total loss included in periodic cost 162 405
Net (gain)/loss arising during year (4,026) 1,004
Amortization of transition obligation (asset) - -
Change in accumulated unrestricted net assets reflected in unrestricted net assets $ (3,409) $ (1,530)
14. Fair Value Disclosure
Fair Value Measurements
The University has categorized its financial instruments, based on the priority of the inputs to the valuation technique, into a three-level fair value hierarchy. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical financial assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the hierarchy are described below:
Level 1 - Financial assets and liabilities whose values are based on unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
26 Arcadia University Notes to Financial Statements May 31, 2015 and 2014
Level 2 - Financial assets and liabilities whose values are based on one or more of the following:
1. Quoted prices for similar assets or liabilities in active markets;
2. Quoted prices for identical or similar assets or liabilities in non-active markets;
3. Pricing models whose inputs are observable for substantially the full term of the asset or liability; or
4. Pricing models whose inputs are derived principally from or corroborated by observable market data through correlation or other means for substantially the full term of the asset or liability.
Level 3 - Financial assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable. These inputs reflect management’s own assumptions about the assumptions a market participant would use in pricing the asset or liability.
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The University’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.
Both observable and unobservable inputs may be used to determine the fair value of positions that the University has classified within the Level 3 category. As a result, the unrealized gains and losses for assets and liabilities within the Level 3 category presented in the tables below may include changes in fair value that were attributable to both observable (e.g., changes in market interest rates) and unobservable (e.g., changes in unobservable long-dated volatilities) inputs.
A review of the fair value hierarchy classifications is conducted on an annual basis. Changes in the type of inputs may result in a reclassification for certain financial assets or liabilities. Reclassifications impacting Level 3 of the fair value hierarchy are reported as transfers in/out of the Level 3 category as of the beginning of the year in which reclassifications occur.
27 Arcadia University Notes to Financial Statements May 31, 2015 and 2014
The following table presents information about the University’s assets and liabilities measured and disclosed at fair value as of May 31, 2015 and 2014 and indicates the fair value hierarchy of the valuation techniques utilized by the University to determine such fair value.
2015 Level 1 Level 2 Level 3 Total
Reported at Fair Value Equity funds: Large cap $ 16,623 $ - $ - $ 16,623 Small cap 3,598 - - 3,598 Mid cap 3,668 - - 3,668 International 11,555 - - 11,555
Total equity funds 35,444 - - 35,444
Fixed income funds: Intermediate term bonds 13,506 - - 13,506 Short term bonds 2,549 - - 2,549
Total fixed income funds 16,055 - - 16,055
Alternative investments: Private equity - - 1,411 1,411 Hedge - 4,533 - 4,533 Real Asset Strategies - 3,006 - 3,006 Natural Resources - - 769 769 Venture capital - - 1,079 1,079 Fixed income - - 575 575
Total alternative investments - 7,539 3,834 11,373
Forward foreign exchange contracts - (2,339) - (2,339) Other investments 1,017 - 2,118 3,135 Deposits with bond trustees 14,101 - - 14,101 Trust funds held by others - - 2,323 2,323
Total $ 66,617 $ 5,200 $ 8,275 $ 80,092
Disclosed at Fair Value Assets: Cash and cash equivalents $ 22,406 $ - $ - $ 22,406 Restricted cash 1,100 - - 1,100 Contributions receivable, net - - 1,204 1,204 Student loans receivable, net - 4,548 - 4,548
Liabilities: Long-term debt (carrying value of $89,830) $ - $ 94,394 $ - $ 94,394 Annuities payable - - 356 356 Refundable loan funds - 773 - 773
28 Arcadia University Notes to Financial Statements May 31, 2015 and 2014
2014 Level 1 Level 2 Level 3 Total
Reported at Fair Value Equity funds: Large cap $ 17,286 $ - $ - $ 17,286 Small cap 4,104 - - 4,104 Mid cap 3,579 - - 3,579 International 11,847 - - 11,847
Total equity funds 36,816 - - 36,816
Fixed income funds: Intermediate term bonds 11,255 - - 11,255 Short term bonds 2,792 - - 2,792
Total fixed income funds 14,047 - - 14,047
Alternative investments: Private equity - - 1,671 1,671 Hedge - 4,197 - 4,197 Real Asset Strategies - 3,435 - 3,435 Natural Resources - - 994 994 Venture capital - - 1,169 1,169 Fixed income - - 596 596
Total alternative investments - 7,632 4,430 12,062
Forward foreign exchange contracts - 899 - 899 Other investments 916 - 2,173 3,089 Deposits with bond trustees 21,586 - - 21,586 Trust funds held by others - - 2,778 2,778
Total $ 73,365 $ 8,531 $ 9,381 $ 91,277
Disclosed at Fair Value Assets: Cash and cash equivalents $ 18,563 $ - $ - $ 18,563 Restricted cash 132 - - 132 Contributions receivable, net - - 1,453 1,453 Student loans receivable, net - 5,610 - 5,610
Liabilities: Long-term debt (carrying value of $91,535) $ - $ 95,230 $ - $ 95,230 Annuities payable - - 294 294 Refundable loan funds - 773 - 773
29 Arcadia University Notes to Financial Statements May 31, 2015 and 2014
The following table presents a reconciliation of the beginning and ending balances of assets with fair value measurements using significant unobservable inputs (Level 3) as of May 31, 2015 and 2014:
Balance, beginning May 31, 2013 $ 10,883 Purchases 185 Distributions (4,567) Realized and unrealized gains 2,880 Balance, ending May 31, 2014 $ 9,381 Balance, beginning, May 31, 2014 $ 9,381 Purchases 380 Distributions (418) Realized and unrealized gains (1,068) Balance, ending May 31, 2015 $ 8,275
The University has a policy which permits investments that do not have a readily determinable fair value, and as such, has elected to use the net asset value per share (the “NAV”) as calculated on the reporting entity’s measurement date as the fair value of the investment. The University measures the fair value of an investment that does not have a readily determinable fair value, based on the NAV of the investment as a practical expedient, without further adjustment, unless it is probable that the investment will be sold at a value significantly different than the NAV. If the practical expedient NAV is not as of the reporting entity’s measurement date, then the NAV is adjusted to reflect any significant events that would materially affect the value of the security and the NAV of the University as of the valuation date. In using the NAV as a practical expedient, certain attributes of the investment, that may impact the fair value of the investment, are not considered in measuring fair value. Attributes of those investments include the investment strategies of the investees and may also include, but are not limited to, restrictions on the investor’s ability to redeem its investments at the measurement date at NAV as well as any unfunded commitments. A listing of the investments held by the University and their attributes, that may qualify for these valuations consist of the following as of May 31:
2015 Redemption Investment Investment Unfunded Redemption Notice Category Strategy Fair Value Commitment Frequency Period (In Thousands) (In Thousands)
Hedged equity Funds are designed to offer investors access to a $ 4,533 $ N/A Quarterly 90 days diversified hedged equity investment program income with less volatility than the S&P 500 over a distributions market cycle. The funds allocate assets to sub- advisers with a primary focus on selection of long and short positions in equity securities that are primarily, but not exclusively, marketable securities issued by U.S. companies. 769 154 Natural Investment of funds in limited partnerships, which in N/A N/A resources turn, make oil, gas, timber and other natural resource-related investments with the objective of obtaining long-term growth of capital.
Real Asset Investment of emerging market bonds, emerging 3,006 N/A Daily 1 day Strategy market equities, high yield market bonds, equities and commodities in the energy and precious metals sectors with objective to provide returns and hedge against inflation
30 Arcadia University Notes to Financial Statements May 31, 2015 and 2014
2015 Unfunded Redemption Investment Investment Fair Value Commitments Redemption Notice Category Strategy (Thousands) (Thousands) Frequency Period (In Thousands) (In Thousands)
Venture Invests primarily in other limited partnerships formed $ 1,079 $ 826 N/A N/A capital for the purpose of making venture capital investments in emerging growth companies. Generally, these investments may not be transferred or withdrawn prior to the termination of limited partnerships, which generally have a term of ten years.
Private equity Invests primarily in other limited partnerships formed 1,411 1,621 N/A N/A for the purpose of making investments in equity securities, warrants or other options, focused either domestically or internationally, that are generally not actively traded at the time of investment. Generally, these investments may not be transferred or withdrawn prior to the termination of limited partnerships, which generally have a term of ten years.
Fixed income Invests in partnerships offered by top-tier distressed 575 153 N/A N/A debt managers. The partnerships focus primarily on investments in securities and other obligations of distressed businesses and financially troubled companies that are priced at significant discounts to their original value.
The following provides a brief description of the types of financial instruments the University holds, the methodology for estimating fair value, and the level within the hierarchy of the estimate.
A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.
Equity funds: These are securities which are traded on a recognized liquid exchange. The closing price of the security as of the reporting date is used to determine fair value. This is considered a Level 1 input in the hierarchy.
Fixed income funds: Fixed income investments include cash, cash equivalents, and bonds. They are traded in active markets and values are based on unadjusted quoted prices. They are considered a Level 1 input in the hierarchy.
Alternative investments: Alternative investments include real estate, venture capital, hedge funds, real return asset funds, domestic and international private equity, distressed debt, commodities, and natural resources. Fair values of investments within Level 2 are valued at the respective net asset values of the underlying investments. Certain other investments valued at net asset value are considered Level 3 inputs in the hierarchy based on the investments not having an observable market and the need for significant estimation to measure fair value.
31 Arcadia University Notes to Financial Statements May 31, 2015 and 2014
Other investments: Other investments include split-interest investments and a mutual fund. The split-interest investments are traded in active markets with fair values determined either at the closing price of the reporting date or unadjusted quoted prices. These are considered a Level 1 input in the hierarchy. Also included in other investments is an investment in a private company. This investment is considered a Level 3 input in the hierarchy.
Forward foreign exchange contracts: These are contracts entered into 15 to 18 months in advance for operating expenditures in the University’s overseas programs. Fair value is based on closing currency exchange rates as of the reporting date. These are considered a Level 2 input in the hierarchy.
Trust funds held by others: These funds are neither in the possession, nor under the control, of the University. Such terms provide that the University is to receive a certain percentage of the income earned by the funds which are held in trust. Because of the permanent right of the University to its share of the trusts’ earnings, the University reports its share of these trusts as trust funds held by others. These are considered a Level 3 input in the hierarchy.
Cash, cash equivalents and restricted cash: These financial instruments approximate fair value due to their short-term maturity. These are considered Level 1 measurements due to their liquidity.
Contributions receivable: Fair value is considered to approximate its carrying value estimated based on future cash flows discounted at risk adjusted rates ranging from 2% to 4% which are considered to be Level 3 inputs.
Annuities payable: The fair value is considered to approximate its carrying value based on discounted cash flows using market rates which are considered to be Level 3 inputs.
Loans receivable, net and refundable loan funds: The carrying amounts of these financial instruments approximate the fair value. The fair value of these loans receivable and advances from the federal government are based upon management’s best estimate of the indicated future cash flows discounted at interest rates required by market participants, which are considered to be Level 2 measurements.
Long-term debt: The estimated fair value is based on quoted market prices for the same or similar issues with similar security terms and maturities which are considered to be Level 2 measurements.
32 Arcadia University Notes to Financial Statements May 31, 2015 and 2014
15. Lease Commitments
Capital Lease Obligations
The University leases certain equipment under the terms of lease agreements that have been classified as capital leases. The following summarizes the changes in capital lease obligations in 2015 and 2014 (in thousands):
Balance, May 31, 2014 $ 60 Additions - Payments (24)
Balance, May 31, 2015 $ 36
The following is a schedule of future minimum lease payments under these leases, together with the present value of the net minimum lease payments as of May 30, 2015
Years ending May 31: 2016 $ 27 2017 16
Total minimum lease payments 43
Less amount representing interest 7
Present value of net minimum lease payments $ 36
Interest expense on capital leases was $8,000 and $9,000 for the years ended May 31, 2015 and 2014, respectively.
Operating Leases
The University has several operating leases for office space and athletic fields. These leases range from one to five years. The College of Global Studies also leases certain overseas properties as offices and student accommodations. These leases have original terms ranging from three months to ten years, and are also accounted for as operating leases. In the normal course of business, most operating leases are renewed or replaced by other leases. Rent expense was $1,854,000 and $1,642,000 for the years ended May 31, 2015 and 2014, respectively. Aggregate future minimum lease payments under operating leases subsequent to May 31, 2015 and 2014 are as follows (in thousands):
Years ending May 31: 2016 $ 1,466 2017 1,064 2018 566 2019 381 2020 377 Thereafter 2,388 Total $ 6,242
33 Arcadia University Notes to Financial Statements May 31, 2015 and 2014
16. Related Party Transactions
During the year ended May 31, 2015 and 2014, the University held an investment in a private company totaling approximately $2,118,000 and $2,173,000, respectively, in which a member of the Board of Trustees is a shareholder/director.
During the year ended May 31, 2015, the University entered into certain transactions at arm’s length (unaudited) with certain Board of Trustees members for the rendering of professional services. The total of these expenditures, related to medical consultations for student health services, for the year ended May 31, 2015 was approximately $12,000.
17. College of Global Studies
The College of Global Studies at Arcadia University (“TCGS”) was originally founded in 1965 as a program to facilitate overseas study by Arcadia University undergraduates. TCGS is one of the largest campus-based international study programs in the United States, serves about 2,500 students each year from nearly 350 colleges and universities around the country. Arcadia has more than 130 programs in 15 countries around the world. The University bills the students, collects the receipts and pays the students’ tuition, housing, and other program costs.
18. Contingencies
The nature of the educational industry is such that, from time to time, claims will be presented against the University on account of alleged negligence, acts of discrimination, breach of contract, or disagreements arising from the interpretation of laws and regulations. While some of these claims may be for substantial amounts, they are not unusual in the ordinary course of providing educational services. Management of the University believes that these claims and their resolution will not have a significant impact on the University’s financial position.
19. Subsequent Event
In June, 2015, the University issued $34,240,000 of Montgomery County Higher Education and Health Authority Revenue Bonds, Series 2015 (2015 Bonds). The 2015 Bonds were issued to advance refund the Authority’s Arcadia University Revenue Bonds, Series of 2006, $36,345,000 of which were outstanding, and to pay certain issuance costs. This issuance was done in conjunction with the forward refunding of Arcadia University Revenue Bonds, Second Series of 2006 (Series 2016 Bonds) under the bond purchase agreement that was signed in June, 2015. The Series 2016 Bonds are scheduled to be issued on or about January 5, 2016.
34 NEW ISSUE RATING: Standard &Poor’s: “BBB” (stable outlook) BOOK-ENTRY-ONLY (See “RATING” herein)
In the opinion of Bond Counsel, under existing statutes, regulations, rulings and court decisions, interest on the Series 2016 Bonds is excluded from gross income of the holders thereof for federal income tax purposes, assuming continuing compliance by the Authority and the University with the requirements of the Internal Revenue Code of 1986, as amended. Interest on the Series 2016 Bonds will not be a specific preference item for purposes of computing the federal alternative minimum tax (the “AMT”); however interest on the Series 2016 Bonds held by certain corporations is included in the computation of “adjusted current earnings,” a portion of which is taken into account in determining the AMT imposed on such corporations. Under the laws of the Commonwealth of Pennsylvania, as enacted and construed on the date hereof, interest on the Series 2016 Bonds is exempt from Pennsylvania personal income tax and Pennsylvania corporate net income tax and the Series 2016 Bonds are exempt from personal property taxes in Pennsylvania. See “CERTAIN TAX MATTERS” herein.
$9,960,000 MONTGOMERY COUNTY HIGHER EDUCATION AND HEALTH AUTHORITY (Commonwealth of Pennsylvania) Arcadia University Revenue Bonds Series of 2016
Dated: Date of Delivery Due: April 1, as shown on inside cover
The Series 2016 Bonds are issuable only in fully registered form without coupons, and, when issued, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York (“DTC”). So long as Cede & Co. is the registered owner, references herein to the registered owners of Series 2016 Bonds shall mean Cede & Co. and not the Beneficial Owners (as herein defined). DTC will act as securities depository of the Series 2016 Bonds, and purchases of beneficial ownership interests in the Series 2016 Bonds will be made in book-entry form only, in denominations of $5,000 or integral multiples thereof. Beneficial Owners will not receive certificates representing their interest in the Series 2016 Bonds. See “THE SERIES 2016 BONDS — Book Entry Only System” herein.
Interest on the Series 2016 Bonds is payable on April 1 and October 1 in each year until maturity or prior redemption, commencing April 1, 2016. Principal or Redemption Price of and interest on the Series 2016 Bonds will be paid by The Bank of New York Mellon Trust Company, N.A., as trustee (the “Trustee”). So long as Cede & Co. is the registered owner, the Trustee will pay principal or Redemption Price of and interest on the Series 2016 Bonds to DTC, which will remit such principal or Redemption Price of and interest to its Participants (as herein defined), which will in turn remit such principal or Redemption Price of and interest to the Beneficial Owners of the Series 2016 Bonds, as described herein.
The Series 2016 Bonds are subject to redemption prior to maturity as more fully described herein.
The Series 2016 Bonds are being issued to finance: (i) the current refunding of certain bonds previously issued for the benefit of Arcadia University (the “University”); and (ii) the payment of certain costs and expenses of issuing the Series 2016 Bonds, as more fully described herein. See “THE 2016 PROJECT” herein. The Series 2016 Bonds are limited obligations of the Authority and are payable solely from payments required to be made by the University under the Series 2016 Loan Agreement and other sources described herein. Neither the credit nor the taxing power of the County of Montgomery, Pennsylvania or the Commonwealth of Pennsylvania or of any political subdivision thereof is pledged for the payment of the principal or redemption price of or interest on the Series 2016 Bonds, nor shall the Series 2016 Bonds be or be deemed a general obligation of the Authority or an obligation of the County of Montgomery, Pennsylvania or the Commonwealth of Pennsylvania or any political subdivision thereof. The Authority has no taxing power.
The Series 2016 Bonds are offered for delivery when, as and if issued by the Authority and received by the Underwriter and subject to receipt of the approving legal opinion of Eckert Seamans Cherin & Mellott, LLC, Philadelphia, Pennsylvania, Bond Counsel. Certain legal matters will be passed upon for the Authority by its counsel, Douglas B. Breidenbach, Jr., Esquire, Pottstown, Pennsylvania; for the University by its General Counsel, Michael Korolishin, Esquire, and for the Underwriter by its counsel, Ballard Spahr LLP, Philadelphia, Pennsylvania. It is expected that the Series 2016 Bonds will be available for delivery through The Depository Trust Company, New York, New York on or about January 5, 2016.
BofA Merrill Lynch
Dated: May 20, 2015
$9,960,000 MONTGOMERY COUNTY HIGHER EDUCATION AND HEALTH AUTHORITY (Commonwealth of Pennsylvania) Arcadia University Revenue Bonds Series of 2016
Maturities, Principal Amounts, Interest Rates, Yields, Prices and CUSIP Numbers
Maturity Principal Interest CUSIP† (April 1) Amount Rate Yield Price (613603) 2016 $ 195,000 5.000% 1.370% 100.860% VA4 2017 40,000 5.000 1.870 103.812 VB2 2018 45,000 5.000 2.360 105.720 VC0 2019 40,000 5.000 2.690 107.115 VD8 2020 40,000 5.000 3.000 107.900 VE6 2021 40,000 5.000 3.330 107.962 VF3 2022 1,575,000 5.000 3.610 107.697 VG1 2023 1,655,000 5.000 3.820 107.395 VH9 2024 1,740,000 5.000 4.030 106.737 VJ5 2025 1,825,000 5.000 4.200 106.067 VK2 2026 1,920,000 5.000 4.330 105.487 VL0 2027 845,000 5.000 4.450* 104.476* VM8
______† Copyright 2015, American Bankers Association. CUSIP data herein are provided by Standard & Poor’s CUSIP Service Bureau, a division of The McGraw-Hill Companies, Inc. The CUSIP number listed above is being provided solely for the convenience of Bondholders only at the time of issuance of the Series 2016 Bonds, and none of the Authority, University or Underwriter makes any representation with respect to such number or undertakes any responsibility for its accuracy now or at any time in the future. The CUSIP number for a specific maturity is subject to being changed after the issuance of the Series 2016 Bonds as a result of the procurement of secondary market portfolio insurance or other similar enhancement by investors that is applicable to all or a portion of certain maturities of the Series 2016 Bonds.
* Priced to the first optional redemption date of April 1, 2026.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVERALLOT OR EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SERIES 2016 BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
The quotations from and summaries and explanations of provisions of laws and documents contained herein, including the cover page and Appendices attached hereto, do not purport to be complete. Reference is made to such laws and documents for full and complete statements of their provisions. Any statements made in this Official Statement involving estimates or matters of opinion, whether or not expressly so stated, are intended merely as estimates or opinions and not as representations of fact. The information and expressions of opinion herein are subject to change without notice. Neither the delivery of this Official Statement nor any sale of the Series 2016 Bonds shall under any circumstances create any implication that there has been no change in the affairs of the Authority or the University since the date of this Official Statement.
No dealer, broker, salesman or other person has been authorized by the Authority, the University or the Underwriter to give any information or to make any representations, other than those contained in this Official Statement, and if given or made, such other information or representation must not be relied upon as having been authorized by any of the foregoing. This Official Statement does not constitute an offer to sell or the solicitation of any offer to buy, nor shall there be any sale of the Series 2016 Bonds by any person in any jurisdiction in which it is unlawful for such person to make such offer, solicitation or sale. The information set forth herein has been obtained from the University and from other sources which are believed to be reliable, but is not guaranteed as to accuracy or completeness and is not to be construed as a representation by the Underwriter or, as to information from other sources, by the Authority or by the University. The information and expressions of opinion herein are subject to change without notice and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in any of the information set forth herein since the date hereof.
The Underwriter has provided the following sentence for inclusion in the Official Statement: The Underwriter has reviewed the information in this Official Statement in accordance with, and as part of, its responsibilities to investors under the federal securities law as applied to the facts and circumstances of this transaction, but the Underwriter does not guaranty the accuracy or completeness of such information.
This Official Statement contains certain “forward-looking statements” concerning the operations and financial condition of the University. These statements are based upon a number of assumptions and estimates which are subject to significant uncertainties, many of which are beyond the control of the University. The words “may,” “would,” “could,” “will,” “expect,” “anticipate,” “believe,” “intend,” “plan,” “estimate” and similar expressions are meant to identify these forward-looking statements. The achievement of certain results or other expectations contained in such forward-looking statements involves known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements described to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The University does not plan to issue any updates or revisions to these forward-looking statements if or when changes to its expectations, or events, conditions or circumstances on which such statements are based, occur.
The Series 2016 Bonds are not and will not be registered under the Securities Act of 1933, as amended, or under any state securities laws, and the Series 2016 Indenture has not been and will not be qualified under the Trust Indenture Act of 1939 because of available exemptions therefrom. Neither the Securities and Exchange Commission nor any federal, state, municipal or other governmental agency will pass upon the accuracy, completeness or adequacy of this Official Statement.
IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Table of Contents
Page
INTRODUCTION ...... 1 THE 2016 PROJECT; PLAN OF FINANCING ...... 2 ESTIMATED SOURCES AND USES OF FUNDS ...... 3 THE AUTHORITY ...... 3 THE SERIES 2016 BONDS ...... 4 SOURCES OF PAYMENT AND SECURITY FOR THE SERIES 2016 BONDS ...... 10 DEBT SERVICE REQUIREMENTS ...... 14 CERTAIN BONDHOLDERS’ RISKS ...... 14 CERTAIN FORWARD DELIVERY CONSIDERATIONS ...... 19 ABSENCE OF LITIGATION ...... 24 CERTAIN TAX MATTERS ...... 24 POTENTIAL CHANGES IN FEDERAL OR STATE TAX LAWS ...... 25 VERIFICATION OF MATHEMATICAL COMPUTATIONS ...... 25 LEGAL MATTERS ...... 26 FINANCIAL STATEMENTS ...... 26 UNDERWRITING ...... 26 RATING ...... 27 CONTINUING DISCLOSURE ...... 27 MISCELLANEOUS ...... 28
APPENDIX A - CERTAIN INFORMATION REGARDING ARCADIA UNIVERSITY ...... A-1 APPENDIX B - AUDITED FINANCIAL STATEMENTS OF ARCADIA UNIVERSITY FOR THE FISCAL YEAR ENDED MAY 31, 2014 AND FOR THE ELEVEN MONTHS ENDED MAY 31, 2013 ...... B-1 APPENDIX C - SUMMARY OF LEGAL DOCUMENTS ...... C-1 APPENDIX D - PROPOSED FORM OF OPINION OF BOND COUNSEL ...... D-1 APPENDIX E - FORM OF CONTINUING DISCLOSURE AGREEMENT ...... E-1
OFFICIAL STATEMENT
$9,960,000 MONTGOMERY COUNTY HIGHER EDUCATION AND HEALTH AUTHORITY (Commonwealth of Pennsylvania) ARCADIA UNIVERSITY REVENUE BONDS SERIES OF 2016
INTRODUCTION
This Official Statement of the Montgomery County Higher Education and Health Authority (the “Authority”), which includes the cover page hereof and the Appendices hereto, provides information relating to the Authority, its $9,960,000 aggregate principal amount of Arcadia University Revenue Bonds, Series of 2016 (the “Series 2016 Bonds”), and Arcadia University (the “University”). The Series 2016 Bonds are being issued under a Series 2016 Trust Indenture dated as of January 1, 2016 (the “Series 2016 Indenture”), between the Authority and The Bank of New York Mellon Trust Company, N.A., as trustee (the “Trustee”). The proceeds of the Series 2016 Bonds will be loaned to the University by the Authority pursuant to a Series 2016 Loan and Security Agreement dated as of January 1, 2016 between the Authority and the University (the “Series 2016 Loan Agreement”), to provide funds for the 2016 Project (as hereinafter defined). The Series 2016 Loan Agreement will provide for the University to repay the loan by paying directly to the Trustee amounts which, together with any other moneys available to the Trustee therefor, are intended to be sufficient, if timely paid in full, to pay the principal or Redemption Price of and interest on, the Series 2016 Bonds when due.
Certain capitalized terms used but not defined herein are defined as described in APPENDIX C – “SUMMARY OF LEGAL DOCUMENTS.”
The Authority is a body corporate and politic, organized and existing under the laws of the Commonwealth of Pennsylvania (the “Commonwealth”), including particularly the Pennsylvania Municipality Authorities Act, 53 Pa. Cons. Stat. §§ 5601-5622 (2005), as amended (the “Act”). Under the Act, the Authority is authorized, among other things, to issue the Series 2016 Bonds and to loan the proceeds thereof to the University to pay the costs of the 2016 Project. See “THE AUTHORITY” herein for additional information regarding the Authority.
The University, originally founded as Beaver College, is a private, nonsectarian co-educational institution of higher education located in Glenside, Pennsylvania. The University is incorporated under the laws of the Commonwealth as a nonprofit corporation and has been determined by the Internal Revenue Service to be an organization described under Section 501(c)(3) of the Internal Revenue Code of 1986, as amended (the “Code”). See APPENDIX A hereto for additional information regarding the University and APPENDIX B hereto for certain financial statements of the University.
The Authority plans to issue $34,240,000 of its Arcadia University Revenue Bonds, Series of 2015 (the “Series 2015 Bonds”) pursuant to a Series 2015 Trust Indenture, dated as of June 1, 2015, between the Authority and The Bank of New York Mellon Trust Company, N.A., as trustee. Proceeds of the Series 2015 Bonds will be loaned to the University by the Authority pursuant to a Series 2015 Loan and Security Agreement, dated as of June 1, 2015 between the Authority and the University to be applied, together with other available funds, to the advance refunding of the Authority’s Arcadia University Revenue Bonds, Series of 2006 (the “Series of 2006 Bonds”). The Series 2015 Bonds are expected to be delivered on or about June 25, 2015. The Series 2015 Bonds are being offered under a separate offering document.
1
The Series 2016 Bonds are being sold pursuant to a Forward Delivery Purchase Agreement dated May 20, 2015 (the “Forward Delivery Purchase Agreement”) among the Authority, the University and Merrill Lynch, Pierce, Fenner & Smith Incorporated (the “Underwriter”) and will be delivered on or about January 5, 2016, subject to the approval of validity and certain other matters by bond counsel and satisfaction of certain other conditions set forth in the Forward Delivery Purchase Agreement. See “CERTAIN FORWARD DELIVERY CONSIDERATIONS” herein.
An investment in the Series 2016 Bonds involves certain additional risks due to the delayed delivery of the Series 2016 Bonds. The delivery of the Series 2016 Bonds is subject to satisfaction of certain conditions precedent. For a discussion of certain factors that should be considered by prospective investors in evaluating an investment in the Series 2016 Bonds, see “CERTAIN FORWARD DELIVERY CONSIDERATIONS” herein. Each prospective purchaser of the Series 2016 Bonds should make an independent evaluation of all of the information presented in this Official Statement, including the information under the caption “CERTAIN FORWARD DELIVERY CONSIDERATIONS.”
THE 2016 PROJECT; PLAN OF FINANCING
The Series 2016 Bonds are being issued to provide a portion of the funds necessary to finance a project (the “2016 Project”) consisting of: (i) the current refunding of the Authority’s Arcadia University Revenue Refunding Bonds, Second Series of 2006 (the “Prior Bonds” and, together with the Series of 2006 Bonds, the “2006 Bonds”), $11,265,000 of which are currently outstanding; and (ii) the payment of certain costs and expenses of issuing the Series 2016 Bonds.
In order to effect the current refunding of the Prior Bonds, a portion of the proceeds of the Series 2016 Bonds and certain moneys currently held in funds established under the trust indenture pursuant to which the Prior Bonds were issued will be deposited in an escrow fund (the “Escrow Fund”) to be held by The Bank of New York Mellon Trust Company, N.A., as escrow agent (the “Escrow Agent”) under an Escrow Deposit Agreement (the “Escrow Agreement”) among the Authority, the University and the Escrow Agent. Such moneys will be held in cash in an amount sufficient, or applied to the purchase of direct obligations of the United States of America (“Government Obligations”) which will be payable as to principal and interest at such times and in such amounts as will be sufficient, together with any initial cash deposits, to pay the principal or redemption price of all outstanding Prior Bonds on April 1, 2016. See “VERIFICATION OF MATHEMATICAL COMPUTATIONS.” Such cash or Government Obligations will be pledged only to the payment of the Prior Bonds and are not available for the payment of the Series 2016 Bonds. After the deposit of the cash or Government Obligations as described above, the Authority and the University will be discharged from all of their payment obligations with respect to the Prior Bonds.
It is expected that the Series 2015 Bonds will be issued on or about June 25, 2015. A portion of the proceeds of the Series 2015 Bonds and certain moneys currently held in funds established under the trust indenture pursuant to which the Series of 2006 Bonds were issued will be deposited in escrow funds to be applied to the purchase of direct obligations of the United States of America which will be payable as to principal and interest at such times and in such amounts as will be sufficient, together with any initial cash deposits, to pay (i) the interest on the Series of 2006 Bonds when due to and including April 1, 2016 and (ii) the principal or redemption price of all outstanding Series of 2006 Bonds on April 1, 2016. After the deposit of such government obligations, the Authority and the University will be discharged from all of their payment obligations with respect to the Series of 2006 Bonds.
2
ESTIMATED SOURCES AND USES OF FUNDS
The following table shows the estimated sources and uses of funds in connection with the 2016 Project:
Sources: Principal Amount of Series 2016 Bonds $ 9,960,000.00 Original Issue Premium 629,700.75 Amounts Held in Funds Securing Prior Bonds 1,169,592.35 Total Sources $11,759,293.10
Uses: Refunding of Prior Bonds $11,546,377.50 Costs of Issuance (1) 212,915.60 Total Uses $11,759,293.10 ______(1) Includes Underwriter’s discount, legal fees, Authority fee, initial and first annual Trustee fee, accounting fees, rating fees, printing and other miscellaneous expenses.
THE AUTHORITY
The Authority is a body corporate and politic organized under the Act by a resolution adopted by the Board of County Commissioners of the County of Montgomery, Pennsylvania (the “County”). On October 1, 1968, the Secretary of the Commonwealth issued a Certificate of Incorporation to the Authority under the name “Montgomery County Hospital Authority.” The Authority originally was formed for the purpose of acquiring, holding, constructing, equipping, furnishing, improving, maintaining, owning, leasing, either in the capacity of lessor or lessee, and operating hospital facilities or parts thereof in the County. On July 2, 1984, the Secretary of the Commonwealth issued a Certificate of Amendment to the Authority under which the name of the Authority was changed to “Montgomery County Higher Education and Health Authority” and the purposes of the Authority were amended to enable the Authority to participate in additional projects authorized by the Act. On October 24, 1985, the Secretary of the Commonwealth issued a Certificate of Amendment to the Authority under which the purposes of the Authority were amended to enable the Authority to participate in such buildings, projects, facilities and parts thereof in such locations as the Board of County Commissioners of the County may direct, and as authorized by the Act, and to grant to the Authority all of the powers granted by the Act.
Members of the Authority
The governing body of the Authority is a board consisting of seven members appointed by the Board of County Commissioners of the County. Members of the Authority are appointed for staggered five-year terms and may be reappointed to an unlimited number of successive terms. All board members serve to December 31 of the year indicated and thereafter until replaced or reappointed. Current members of the Authority, their offices, principal occupations and terms of office are as follows:
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Term Members Office Occupation Expires
James A. Konnick Chairman CFO, Unlimited Restoration, Inc. 2017
Jeffrey Bevington Vice Chairman Retired 2016
William P. Rimel, III Assistant Secretary Self-Employed 2016
Robert L. Williams, Jr. Assistant Secretary COO, Robert Williams Funeral Home, Inc. 2016
James H. Shacklett, III Assistant Secretary CEO, National Label Company 2015
J. Mark Lankford Assistant Secretary Lankford Buick, Pontiac & GMC, Inc. 2015
Harriet Weiss Assistant Secretary CEO, CRW Graphics 2017
The address of the Authority is 1800 East High Street, Suite 250, Pottstown, PA 19464.
Financings of the Authority
The Authority has participated in the past and intends to participate from time to time in the future in additional financing transactions for other health care and higher education facilities and projects, and for other projects permitted under the Act, and in connection therewith may issue bonds or notes which will be limited obligations of the Authority, to be solely payable from and secured by revenues derived from such projects. The Authority may also from time to time enter into refinancing transactions for obligations previously issued.
THE AUTHORITY HAS NOT PREPARED OR ASSISTED IN THE PREPARATION OF THIS OFFICIAL STATEMENT, EXCEPT THE STATEMENTS UNDER THIS SECTION AND UNDER THE HEADING “ABSENCE OF LITIGATION” BELOW IN RESPECT OF THE AUTHORITY, AND EXCEPT AS AFORESAID, THE AUTHORITY DISCLAIMS RESPONSIBILITY FOR THE DISCLOSURES SET FORTH HEREIN MADE IN CONNECTION WITH THE OFFER, SALE AND DISTRIBUTION OF THE SERIES 2016 BONDS.
The Series 2016 Bonds are limited obligations of the Authority and are payable solely from payments required to be made by the University under the Series 2016 Loan Agreement and other sources described herein. Neither the credit nor the taxing power of the County, the Commonwealth or any political subdivision thereof is pledged for the payment of the principal or Redemption Price of or the interest on the Series 2016 Bonds, nor shall the Series 2016 Bonds be deemed to be a general obligation of the Authority or an obligation of the County, the Commonwealth or any political subdivision thereof. The Authority has no taxing power.
THE SERIES 2016 BONDS
Description of the Series 2016 Bonds
The Series 2016 Bonds are to be issued in the aggregate principal amount of $9,960,000.
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The Series 2016 Bonds will be dated their date of delivery, will bear interest at the rates, mature on the dates and be offered at the initial prices or yields, all as set forth on the inside cover page of this Official Statement. The Series 2016 Bonds will be issued as fully registered bonds in the denomination of $5,000 principal amount or any integral multiple thereof and will have the exchange provisions as provided in the Series 2016 Indenture.
Interest on the Series 2016 Bonds will be calculated on the basis of a 360-day year consisting of twelve 30-day months and is payable until maturity or prior redemption semiannually on each April 1 and October 1, commencing April 1, 2016 (each, a “Scheduled Interest Payment Date”).
The Series 2016 Bonds will be issued as fully registered book-entry bonds, and registered in the name of Cede & Co., as nominee for The Depository Trust Company, New York, New York (“DTC”), which will act as securities depository for the Series 2016 Bonds under its book-entry-only system. An individual purchaser may purchase a Series 2016 Bond in book-entry form (without certificates) in denominations of $5,000, or any integral multiple thereof. So long as the Series 2016 Bonds are issued through the book-entry only system of DTC, all purchases of the Series 2016 Bonds and all payments of the principal or Redemption Price of, and interest on, the Series 2016 Bonds will be made in accordance with the procedures of DTC as described under “Book-Entry Only System” below.
Book-Entry Only System
Portions of the following information concerning DTC and DTC's book-entry only system have been obtained from DTC. The information in this section concerning DTC and DTC’s book-entry system has been obtained from sources that the Authority, the University and the Underwriter believe to be reliable; however, the Authority, the University and the Underwriter take no responsibility for the accuracy thereof and make no representation as to the accuracy of such information.
DTC will act as securities depository for the Series 2016 Bonds. The Series 2016 Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC’s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered Series 2016 Bond certificate will be issued for each maturity of the Series 2016 Bonds, in the aggregate principal amount of such maturity, and will be deposited with DTC.
DTC, the world’s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations. DTC is a wholly owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). DTC has a Standard &
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Poor’s rating of AA+. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission (the “SEC”). More information about DTC can be found at www.dtcc.com.
Purchases of Series 2016 Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Series 2016 Bonds on DTC’s records. The ownership interest of each actual purchaser of each Series 2016 Bond (the “Beneficial Owner”) is in turn to be recorded on the Direct and Indirect Participants’ records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Series 2016 Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Series 2016 Bonds, except in the event that use of the book-entry system for the Series 2016 Bonds is discontinued.
To facilitate subsequent transfers, all Series 2016 Bonds deposited by Direct Participants with DTC are registered in the name of DTC’s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Series 2016 Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Series 2016 Bonds; DTC’s records reflect only the identity of the Direct Participants to whose accounts such Series 2016 Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Series 2016 Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Series 2016 Bonds, such as redemptions, tenders, defaults, and proposed amendments to the Series 2016 Indenture. For example, Beneficial Owners of Series 2016 Bonds may wish to ascertain that the nominee holding the Series 2016 Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them.
Redemption notices shall be sent to DTC. If less than all of the Series 2016 Bonds within an issue are being redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed.
Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to the Series 2016 Bonds unless authorized by a Direct Participant in accordance with DTC’s Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the Authority as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts Series 2016 Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy).
Payments of principal or Redemption Price of and interest on the Series 2016 Bonds will be paid to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit Direct Participants’ accounts upon DTC’s receipt of funds and corresponding detail information from the Authority or the Trustee, as applicable, on payable date in accordance with their respective holdings shown on DTC’s records. Payments by Participants to Beneficial Owners will
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be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in “street name,” and will be the responsibility of such Participant and not of DTC nor its nominee, the Trustee, or the Authority, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal or Redemption Price and interest to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Trustee, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants.
DTC may discontinue providing its services as security depository with respect to the Series 2016 Bonds at any time by giving reasonable notice to the Authority or the Trustee. Under such circumstances, in the event that a successor securities depository is not obtained, Series 2016 Bond certificates are required to be printed and delivered.
The Authority may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, Series 2016 Bond certificates will be printed and delivered.
So long as Cede & Co. is the registered owner of the Series 2016 Bonds, as nominee of DTC, references herein under “Book-Entry Only System” to the bondholders or registered owners of the Series 2016 Bonds means Cede & Co., not the Beneficial Owners of the Series 2016 Bonds.
THE AUTHORITY, THE UNIVERSITY, THE TRUSTEE AND THE UNDERWRITER CANNOT AND DO NOT GIVE ANY ASSURANCES THAT DTC WILL DISTRIBUTE TO ITS PARTICIPANTS OR THAT DIRECT PARTICIPANTS OR INDIRECT PARTICIPANTS WILL DISTRIBUTE TO BENEFICIAL OWNERS OF THE SERIES 2016 BONDS (1) PAYMENTS OF THE PRINCIPAL OR REDEMPTION PRICE OF, OR INTEREST ON, THE SERIES 2016 BONDS, OR (2) CONFIRMATION OF OWNERSHIP INTERESTS IN THE SERIES 2016 BONDS, OR (3) REDEMPTION OR OTHER NOTICES, OR THAT THEY WILL DO SO ON A TIMELY BASIS, OR THAT DTC, DIRECT PARTICIPANTS OR INDIRECT PARTICIPANTS WILL SERVE AND ACT IN THE MANNER DESCRIBED IN THIS OFFICIAL STATEMENT. THE CURRENT “RULES” APPLICABLE TO DTC ARE ON FILE WITH THE SEC AND THE CURRENT “PROCEDURES” OF DTC TO BE FOLLOWED IN DEALING WITH ITS PARTICIPANTS ARE ON FILE WITH DTC.
NONE OF THE AUTHORITY, THE UNIVERSITY, THE TRUSTEE OR THE UNDERWRITER WILL HAVE ANY RESPONSIBILITY OR OBLIGATION TO DTC, DIRECT PARTICIPANTS, INDIRECT PARTICIPANTS OR BENEFICIAL OWNERS OF THE SERIES 2016 BONDS WITH RESPECT TO (1) THE ACCURACY OF ANY RECORDS MAINTAINED BY DTC, ANY DIRECT PARTICIPANT OR ANY INDIRECT PARTICIPANT, (2) THE PAYMENT BY DTC TO ANY DIRECT PARTICIPANT OR BY ANY DIRECT PARTICIPANT OR INDIRECT PARTICIPANT OF ANY AMOUNT DUE TO ANY BENEFICIAL OWNER IN RESPECT OF THE PRINCIPAL AMOUNT OR REDEMPTION OF, OR INTEREST ON, ANY SERIES 2016 BOND, (3) THE DELIVERY OF ANY NOTICE BY DTC, ANY DIRECT PARTICIPANT OR ANY INDIRECT PARTICIPANT, (4) THE SELECTION OF THE BENEFICIAL OWNERS TO RECEIVE PAYMENT IN THE EVENT OF ANY PARTIAL REDEMPTION OF THE SERIES 2016 BONDS, OR (5) ANY OTHER ACTION TAKEN BY DTC, ANY DIRECT PARTICIPANT OR ANY INDIRECT PARTICIPANT.
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Discontinuation of Book-Entry Only System
DTC may determine to discontinue providing its service with respect to the Series 2016 Bonds at any time by giving notice to the Authority and the Trustee and discharging its responsibilities with respect thereto under applicable law. In addition, the Authority may decide at any time to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository) with respect to any Series 2016 Bond. In either event, certificates for the applicable Series 2016 Bonds would be printed and delivered, and the following provisions would apply, subject to the further conditions set forth in the Series 2016 Indenture.
Delivery of Certificates. Upon termination of the Book-Entry System for the Series 2016 Bonds, Series 2016 Bond certificates in fully registered form will be delivered to, and registered in the names of, the DTC Participants or such other persons as such DTC Participants may specify (which may be the Indirect Participants or beneficial owners), in authorized denominations of $5,000 or integral multiples thereof. The ownership of the Series 2016 Bonds so delivered (and any Series 2016 Bonds thereafter delivered upon a transfer or exchange described below) shall be registered on the bond register (the “Bond Register”) of the Authority to be maintained by the Trustee at its corporate trust office located in Philadelphia, Pennsylvania, and the Authority and the Trustee shall be entitled to treat the registered owners of such Series 2016 Bonds, as their names appear on the Bond Register as of the appropriate dates, as the absolute owners thereof for all purposes described herein and in the Series 2016 Indenture.
Payment Upon Discontinuation of Book-Entry System. Upon termination of the Book-Entry System for the Series 2016 Bonds, the interest payable on any Scheduled Interest Payment Date will be paid to the Person in whose name such Series 2016 Bond is registered in the Bond Register maintained by the Trustee (the “Holder”) as of the close of business of the fifteenth day (whether or not a Business Day) of the calendar month immediately preceding each Scheduled Interest Payment Date (the “Regular Record Date”) for such Scheduled Interest Payment Date. Interest will be paid by check mailed on the applicable Scheduled Interest Payment Date to each Holder at the address shown on the Bond Register maintained by the Trustee.
The principal or Redemption Price of the Series 2016 Bonds will be payable in lawful money of the United States of America at the Payment Office of the Trustee. Except as described below, no payment of principal or Redemption Price shall be made on any Series 2016 Bond, unless and until such Series 2016 Bond is delivered to the Trustee for cancellation.
Notwithstanding the provisions described above, interest on any Series 2016 Bonds and the Redemption Price of any Series 2016 Bonds redeemed by mandatory sinking fund redemption may be paid by wire transfer in immediately available funds to an account in any member bank of the Federal Reserve System designated in writing by the Holder thereof in an aggregate principal amount of $1,000,000 or more not less than 20 days prior to the applicable Scheduled Interest Payment Date or redemption date; provided that, in the case of the payment of the Redemption Price, any Series 2016 Bonds to be redeemed are presented to the Trustee for cancellation and that the Trustee’s records with respect to the payment of the principal of any Series 2016 Bond in accordance with this subsection shall be conclusive and binding on the Holder of any Series 2016 Bond so paid and each successive Holder thereof. Any such notice provided by a Holder in accordance with the preceding sentence may provide that it shall be effective for any and all future payment dates until otherwise specified in writing.
Defaulted Interest
Any interest which is not paid or duly provided for on any Scheduled Interest Payment Date (“Defaulted Interest”) will cease to be payable to the Holder on such Regular Record Date and will be
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paid instead to the Person in whose name the Series 2016 Bond is registered at the close of business on a Special Record Date established for the payment of such Defaulted Interest pursuant to the terms of such Series 2016 Bonds, such date to be not less than 10 days (whether or not a Business Day) prior to the date of proposed payment. The Trustee, at the expense of the Authority, will cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed to each Holder as of the Business Day preceding the mailing date, at the address appearing for such Holder in the Bond Register not less than 10 days prior to such Special Record Date (but in no event more than 30 days prior to the proposed payment date).
Payment of Series 2016 Bonds in Full
Interest on each Series 2016 Bond (or portion thereof) will cease to accrue on the maturity date thereof or date fixed for the redemption thereof, provided in the case of redemption that proper notice thereof has been given and provided in each case that there has been irrevocably deposited with the Trustee an amount sufficient to pay the principal or Redemption Price thereof, as applicable, plus all unpaid interest accrued thereon to such date.
Transfers and Exchanges
Prior to the termination of the book-entry only system described above, transfers of the Series 2016 Bonds may be effected only as described under “Book-Entry Only System” above. In the event such book-entry only system is terminated and not replaced, then the Series 2016 Bonds may be transferred or exchanged only upon presentation thereof to the Trustee, accompanied by an assignment duly executed by the registered owner thereof or his authorized representative, and subject to such additional fees and requirements as may be established by the Trustee. Neither the Authority nor the Trustee will be required to issue, exchange or transfer any Series 2016 Bonds (i) during a period of fifteen (15) days before the date of the mailing of a notice of redemption of Series 2016 Bonds selected for redemption, or (ii) which have been selected or called for redemption in whole or in part.
No service charge will be made to the Holder of any Series 2016 Bond for any exchange or transfer, but the Authority may require payment of a sum sufficient to pay any tax or other governmental charge that may be imposed in relation thereto. In the event any Series 2016 Bond is mutilated, lost, stolen or destroyed, the Authority may execute and the Trustee may authenticate a new bond of the same maturity of like tenor and denomination in accordance with the provisions of the Series 2016 Indenture pursuant to which the Series 2016 Bonds are issued and are secured, and the Authority and the Trustee may charge the registered owner of such Series 2016 Bond with their reasonable fees and expenses and require indemnity in connection therewith.
Redemption Provisions
Optional Redemption. The Series 2016 Bonds maturing on April 1, 2027 are subject to optional redemption prior to maturity as directed by the University, in whole or in part at any time on or after April 1, 2026, if in part as selected by the Trustee by lot, upon payment of a Redemption Price equal to 100% of the principal amount of such Series 2016 Bonds to be redeemed, together with accrued interest to the optional redemption date.
Partial Redemption. In the case of an optional redemption of less than all of the Series 2016 Bonds prior to maturity, such redemption may be in any order of maturity and in any principal amount within a maturity as designated by the University. In the event of the optional redemption of any Series 2016 Bonds, the University shall be further entitled to designate whether such payments shall be credited against principal amounts due at maturity or against particular mandatory redemption obligations with
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respect to the Series 2016 Bonds. In the case of any redemption (including any mandatory sinking fund redemption) of less than all of the Series 2016 Bonds of any maturity, the Series 2016 Bonds of such maturity to be redeemed shall be selected by the Trustee by lot of other method of selection customarily utilized by the Trustee.
Notice of Redemption. The Trustee shall cause notice of any redemption of Series 2016 Bonds to be mailed by first class mail to the Holders of all Series 2016 Bonds to be redeemed at the registered addresses appearing in the registration books maintained by the Trustee. Each such notice shall (i) be mailed at least 30 days and not more than 60 days prior to the date fixed for redemption, (ii) identify the Series 2016 Bonds to be redeemed, specifying the name of the issue, the date of the issue, the stated maturity, the series designation, the CUSIP numbers and certificate numbers assigned to the Series 2016 Bonds subject to redemption, (iii) specify the date fixed for redemption and the Redemption Price and (iv) state that on the date fixed for redemption the Series 2016 Bonds called for redemption will be payable at the Payment Office of the Trustee upon presentation and surrender thereof, that from that date interest will cease to accrue and that no representation is made as to the accuracy or correctness of the CUSIP numbers printed therein or on the Series 2016 Bonds.
If at the time of mailing of any notice of redemption, the Authority shall not have deposited with the Trustee moneys sufficient to redeem all the Series 2016 Bonds called for redemption, such notice shall state that such redemption is subject to the deposit of the redemption monies with the Trustee not later than 10:00 a.m. on the date fixed for redemption and shall be of no effect unless such monies are so deposited.
Failure to give notice in the manner described in this paragraph with respect to any Series 2016 Bond, or any defect in such notice, shall not affect the validity of the proceedings for redemption for any Series 2016 Bond with respect to which notice was properly given.
SOURCES OF PAYMENT AND SECURITY FOR THE SERIES 2016 BONDS
Set forth below is certain information summarizing the provisions of the Series 2016 Indenture, the Series 2016 Loan Agreement and the Intercreditor Agreement with respect to the sources of payment and security for the Series 2016 Bonds. This information is qualified by reference to the more complete summaries of such documents included in APPENDIX C – “SUMMARY OF LEGAL DOCUMENTS,” and to the complete provisions of such documents, copies of which are available for inspection during normal business hours at the corporate trust office of the Trustee located in Philadelphia, Pennsylvania.
Limited Obligations
The Series 2016 Bonds are limited obligations of the Authority and are payable solely from payments required to be made by the University under the Series 2016 Loan Agreement and other sources described herein. Neither the credit nor the taxing power of the County, the Commonwealth or any political subdivision thereof is pledged for the payment of the principal or Redemption Price of or the interest on the Series 2016 Bonds, nor shall the Series 2016 Bonds be deemed to be a general obligation of the Authority or an obligation of the County, the Commonwealth or any political subdivision thereof. The Authority has no taxing power.
The Series 2016 Bonds will be payable solely from and secured by the pledge, assignment and transfer of (i) the Series 2016 Loan Agreement and all loan payments of the University thereunder (subject to the Reserved Rights of the Authority), including the right, title and interest of the Authority as secured party under the Series 2016 Loan Agreement in and to the Pledged University Revenues (defined
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below) of the University subject to the Intercreditor Agreement (defined below), and (ii) all funds held in trust pursuant to the Series 2016 Indenture (other than the Rebate Fund).
Series 2016 Loan Agreement
The Series 2016 Bonds will be secured by an assignment to the Trustee of all the right, title and interest of the Authority in and to the Series 2016 Loan Agreement (except for certain rights relating to the payment of fees and expenses of the Authority and the indemnity of the Authority thereunder), including amounts payable by the University thereunder. The Series 2016 Loan Agreement is a general obligation of the University, and the full faith and credit of the University is pledged to the payment of all sums due thereunder. The University will agree in the Series 2016 Loan Agreement, among other things, to make loan payments thereunder to the Trustee (as assignee of the Authority’s rights in the Series 2016 Loan Agreement) (i) by not later than March 15 and September 15 in each year in amounts sufficient to pay the interest due on the Series 2016 Bonds on the next succeeding April 1 or October 1, and (ii) by not later than March 15 in each year in an amount equal to the principal becoming due, at maturity or upon mandatory sinking fund redemption, on the next succeeding April 1 and (iii) otherwise at such times and in such amounts as required to pay the principal or Redemption Price of, and the interest on, the Series 2016 Bonds when due. See APPENDIX C – “SUMMARY OF LEGAL DOCUMENTS: THE SERIES 2016 LOAN AGREEMENT -- Loan Payments and Additional Payments.”
The University’s obligations under the Series 2016 Loan Agreement will be secured by a lien on and security interest in the Pledged University Revenues of the University subject to the Intercreditor Agreement as described below. The “Pledged University Revenues” include all receipts, revenues, income and other money received by the University from any source and all rights to receive the same (including without limitation, tuition and fee revenues, dormitory and dining revenues, and other operating revenues and non-operating revenues determined in accordance with Generally Accepted Accounting Principles), whether in the form of accounts receivable, contract rights, chattel paper, instruments or other rights, and the proceeds thereof, and any insurance thereon, whether now existing or hereafter coming into existence and whether now owned or held or hereafter acquired by the University; provided, however, that gifts, grants, bequests, donations and contributions heretofore or hereafter made, designated at the time of making thereof by the donor or maker as being for certain specific purposes, and the income derived therefrom, to the extent required by such designation, shall be excluded from Pledged University Revenues.
The effectiveness of the pledge of Pledged University Revenues of the University is limited since a security interest in money generally cannot be perfected by the filing of financing statements under the Pennsylvania Uniform Commercial Code (“UCC”). Rather, such a security interest is perfected by taking possession of the subject funds. Prior to the occurrence of an Event of Default, the moneys constituting Pledged University Revenues received by the University from time to time are not required to be transferred to or held by the Trustee, and may be spent by the University or commingled with its other funds.
To the extent that a security interest can be perfected in the Pledged University Revenues by the filing of financing statements, such action will be taken. The security interest in the Pledged University Revenues may be subject to certain limitations under the UCC. Such security interest may be further limited by the following: (1) statutory liens; (2) rights arising in favor of the United States of America or any agency thereof; (3) present or future prohibitions against assignment contained in any Pennsylvania statutes or regulations; (4) constructive trusts, equitable liens or other rights impressed or conferred by any Pennsylvania or federal court in the exercise of its equitable jurisdiction; (5) federal bankruptcy laws or state laws dealing with fraudulent conveyances affecting assignments of revenues and assets; and (6)
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any defect in the filing of, or any failure to file, appropriate continuation statements to the UCC. See also “CERTAIN BONDHOLDERS’ RISKS – Limitation on Security Interest” herein.
Parity Indebtedness; Intercreditor Agreement
The pledge and assignment by the University of the Pledged University Revenues to secure the payment of its obligations with respect to the Series 2016 Bonds will be on a parity with additional indebtedness secured thereby (collectively, “Parity Indebtedness”), which will include, as of the date of issuance of the Series 2016 Bonds: (i) the University’s payment obligations with respect to the Authority’s Arcadia University Revenue Bonds, Series of 2010 (the “2010 Bonds”), issued in the original aggregate principal amount of $23,000,000, all of which remains outstanding; (ii) the University’s payment obligations with respect to the Authority’s Arcadia University Revenue Bonds, Series of 2013 (the “2013 Bonds”), issued in the original aggregate principal amount of $20,000,000 (of which $19,220,000 remains outstanding); (iii) the Series 2015 Bonds; (iv) the Series 2016 Bonds; and (v) additional future indebtedness of the University which may be incurred, guaranteed and assumed in accordance with the provisions of the Series 2016 Loan Agreement, which indebtedness may, upon compliance with the terms of the Series 2016 Loan Agreement, be secured by a pledge and assignment of the Pledged University Revenues on a parity with the pledge and assignment thereof securing the University’s payment obligation in respect of the outstanding Series 2016 Bonds.
To provide for the collection and distribution of the Pledged University Revenues, the University, the trustee for the holders of the 2006 Bonds (the “2006 Trustee”), the trustee for the holders of the Series 2010 Bonds (the “2010 Trustee”), the trustee for the holders of the Series 2013 Bonds (the “2013 Trustee”) and the trustee for the holders of the Series 2015 Bonds (the “2015 Trustee”) have entered into an Intercreditor Agreement dated as of February 1, 2006, as supplemented by a Supplement to Intercreditor Agreement dated as of May 1, 2010, a Second Supplement to Intercreditor Agreement dated as of December 1, 2013 and a Third Supplement to Intercreditor Agreement dated as of June 1, 2015 (the “Original Intercreditor Agreement”).
In connection with issuance and delivery of the Series 2016 Bonds, the University, the Trustee and The Bank of New York Mellon Trust Company, N.A., as 2010 Trustee, as 2013 Trustee, as 2015 Trustee and as Collateral Agent, will enter into a Fourth Supplement to Intercreditor Agreement dated as of January 1, 2016 (the “Series 2016 Intercreditor Agreement Supplement”, and together with the Original Intercreditor Agreement, the “Intercreditor Agreement”), providing for the inclusion of the obligations of the University under the Series 2016 Loan Agreement with respect to the Series 2016 Bonds as additional parity indebtedness secured by the pledge and assignment of the Pledged University Revenues on a pro rata basis with the University’s payment obligations under or with respect to the 2010 Bonds, the 2013 Bonds and the 2015 Bonds.
In accordance with the Intercreditor Agreement, upon the occurrence of any Event of Default, the University is obligated to deliver daily to The Bank of New York Mellon Trust Company, N.A., in its capacity as collateral agent thereunder (in such capacity, the “Collateral Agent”), or permit the Collateral Agent to collect directly, so far as practicable, all of the Pledged University Revenues until the total amount of such moneys so delivered or collected equals the total amounts due and payable in respect of all Parity Indebtedness of the University. Such pledge and covenant to pay shall not inhibit the right of the University to collect and apply Pledged University Revenues and other sums pledged in such manner and to such purposes as it deems appropriate so long as it is not in default under the terms of any Parity Indebtedness. The Collateral Agent is required under the Intercreditor Agreement to hold and apply the Pledged University Revenues to the payment of the University’s obligations in respect of all Parity Indebtedness on a pro rata basis in proportion to the aggregate amounts due under each Parity Debt Agreement (less, in each case, the amount of any available funds pledged exclusively for the benefit of
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any such obligations, including, without limitation, any debt service fund or debt service reserve fund). The Collateral Agent has agreed in the Intercreditor Agreement to promptly make available to the Trustee, the 2010 Trustee, the 2013 Trustee, the 2015 Trustee and each future Parity Secured Party, any portion of the Pledged University Revenues to which such Parity Secured Parties are entitled under the Intercreditor Agreement.
For a more complete description of the Intercreditor Agreement, see APPENDIX C hereto under the heading “THE INTERCREDITOR AGREEMENT.”
Additional Indebtedness
The Series 2016 Bonds are the only indebtedness that can be issued under the Series 2016 Indenture. However, under the Series 2016 Loan Agreement, the University is permitted, upon compliance with terms thereof (including entering into an appropriate amendment or supplement to the Intercreditor Agreement), to incur additional Long-Term Debt and Short-Term Debt, including additional Long-Term Debt constituting Parity Indebtedness secured by a security interest in the Pledged University Revenues, on an equal and ratable basis with the Series 2016 Bonds and the existing Parity Indebtedness. Any future Long-Term Debt of the University may also be secured by mortgages on the University’s property to the extent permitted under the Series 2016 Loan Agreement. The University is also permitted under the Series 2016 Loan Agreement to pledge to the payment of additional Long-Term Debt revenues from specific facilities comprising a portion of the University Facilities under certain circumstances.
For a description of the terms of the Series 2016 Loan Agreement under which the University is permitted to incur and secure additional indebtedness, See APPENDIX C hereto under the headings “THE SERIES 2016 LOAN AGREEMENT -- Restrictions on Indebtedness” and “-- Security for Indebtedness.”
Rate Covenant
The University covenants in the Series 2016 Loan Agreement that it shall fix, charge and collect during each Fiscal Year rates, fees and charges for its services in an amount sufficient to produce a ratio of (i) the Net Revenues of the University for such Fiscal Year, together with other moneys available to the University for such purpose, to (ii) the Debt Service Requirements for such Fiscal Year with respect to all Long-Term Debt of the University Outstanding during such Fiscal Year, of at least 110%.
If, in any Fiscal Year, the University fails to meet the foregoing rate covenant, it shall immediately request a Consultant to make a report and recommendation with respect to such rates, fees and charges. The University further covenants that upon receipt of such report and recommendation from the Consultant, the University shall cause copies thereof to be filed with the Trustee and the Authority, and the University shall take appropriate steps to cure such failure. No Event of Default shall occur, however, due to the failure of the University to comply with the rate covenant for any Fiscal Year unless the University also fails to achieve compliance with the rate covenant for the next succeeding Fiscal Year. See APPENDIX C – “SUMMARY OF LEGAL DOCUMENTS: THE SERIES 2016 LOAN AGREEMENT – Rate Covenant.”
Defeasance
If the Authority deposits with the Trustee funds, evidenced by moneys or Government Obligations, the principal of and interest on which, when due, will be sufficient to pay the principal or Redemption Price of any Series 2016 Bonds, by call for redemption or otherwise, together with interest accrued to the due date or the redemption date, as appropriate, in accordance with the terms of the Series
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2016 Indenture, such Series 2016 Bonds shall no longer be deemed to be Outstanding under the Series 2016 Indenture. Interest on such Series 2016 Bonds, as appropriate, will cease to accrue on the due date or the redemption date, as appropriate, and from and after the date of such deposit of funds with the Trustee the Holders of the Series 2016 Bonds will be restricted to the funds so deposited as provided in the Series 2016 Indenture. See APPENDIX C – “SUMMARY OF LEGAL DOCUMENTS: THE SERIES 2016 INDENTURE -- Defeasance.”
DEBT SERVICE REQUIREMENTS
The following table indicates debt service on the Long-Term Debt of the University which will be outstanding following issuance of the Series 2016 Bonds for the years indicated.
Debt Service On Fiscal Outstanding Series 2015 Bonds Series 2016 Bonds Total Year Indebtedness Principal Interest Principal Interest Debt Service 2016 $2,690,894 $1,695,000 $1,173,422 $ 195,000 $ 118,967 $5,873,282 2017 2,688,144 1,395,000 1,462,750 40,000 488,250 6,074,144 2018 2,685,744 1,460,000 1,393,000 45,000 486,250 6,069,994 2019 2,687,744 1,535,000 1,320,000 40,000 484,000 6,066,744 2020 2,688,944 1,615,000 1,243,250 40,000 482,000 6,069,194 2021 2,689,344 1,700,000 1,162,500 40,000 480,000 6,071,844 2022 3,423,944 250,000 1,077,500 1,575,000 478,000 6,804,444 2023 3,419,156 255,000 1,070,000 1,655,000 399,250 6,798,406 2024 3,420,356 265,000 1,059,800 1,740,000 316,500 6,801,656 2025 3,423,131 270,000 1,051,188 1,825,000 229,500 6,798,819 2026 3,422,506 280,000 1,041,738 1,920,000 138,250 6,802,494 2027 3,424,031 290,000 1,031,588 845,000 42,250 5,632,869 2028 3,421,431 2,480,000 1,020,713 6,922,144 2029 3,424,719 2,580,000 921,513 6,926,231 2030 3,422,856 2,705,000 792,513 6,920,369 2031 3,420,806 2,840,000 657,263 6,918,069 2032 3,418,969 2,965,000 536,563 6,920,531 2033 3,420,888 3,085,000 410,550 6,916,438 2034 3,420,994 3,220,000 279,438 6,920,431 2035 3,419,000 3,355,000 142,588 6,916,588 2036 3,419,625 3,419,625 2037 3,417,300 3,417,300 2038 3,416,744 3,416,744 2039 3,417,388 3,417,388 2040 3,418,663 ______3,418,663 Total $81,123,319 $34,240,000 $18,847,872 $9,960,000 $4,143,217 $148,314,407
CERTAIN BONDHOLDERS’ RISKS
The Series 2016 Bonds will be limited obligations of the Authority payable solely from amounts to be paid by the University under the Series 2016 Loan Agreement and from other funds available to the Trustee under the Series 2016 Indenture. No representation or assurance can be given to the effect that the University will generate sufficient revenues to meet its payment obligations under the Series 2016 Loan Agreement.
Various factors could adversely affect the University’s ability to pay the obligations under the Series 2016 Loan Agreement. The future financial condition of the University could be adversely affected by, among other things, economic conditions in the areas from which the University traditionally draws students, legislation, regulatory actions, increased competition from other educational institutions, changes in the demand for higher educational services, demographic changes and litigation. Some of such risk factors are described below.
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The following is intended only as a summary of certain risk factors attendant to an investment in the Series 2016 Bonds and is not intended to be exhaustive. In order to identify risk factors and make informed investment decisions, potential investors should be thoroughly familiar with the entire Official Statement (including each Appendix) in order to make a judgment as to whether the Series 2016 Bonds are an appropriate investment. Purchasers of the Series 2016 Bonds, particularly purchasers that are corporations (including S corporations and foreign corporations operating branches in the United States of America), property or casualty insurance companies, banks or other financial institutions or certain recipients of Social Security benefits, are advised to consult their tax advisors as to the tax consequences of purchasing or holding the Series 2016 Bonds. See “CERTAIN TAX MATTERS” herein.
Legislative and Regulatory Actions. The University and its operations are subject to regulation, certification and accreditation by various federal, state and local government agencies and by certain nongovernmental agencies. No assurance can be given as to the effect on future operations of existing laws, regulations and standards for certification or accreditation or of any future changes in such laws, regulations and standards.
The College of Global Studies. The College of Global Studies at the University (“TCGS”) operates offices/centers in multiple countries on several continents and has affiliations with over 350 colleges and universities of higher learning in the United States (see APPENDIX A – “CERTAIN INFORMATION REGARDING ARCADIA UNIVERSITY – The College of Global Studies”). TCGS is subject to variations in enrollment, fluctuations in currency valuation and to world events generally. Certain global events could cause demand for international study programs to decline which could cause a reduction in the net contribution provided by TCGS to the University. In addition, future changes in regulations which govern the programs offered by TCGS could cause a reduction in the net contribution provided by TCGS to the University.
Competition. The University could face additional competition in the future from other educational institutions that offer comparable services and programs to the population which the University presently serves. This could include the establishment of new programs and the construction, renovation or expansion of competing educational institutions. TCGS could also face additional competition in the future from both non-profit and for-profit providers of similar programs.
Tax-Exempt/Nonprofit Status. In recent years, the activities of tax-exempt organizations have been subjected to increasing scrutiny by federal, state, and local legislative and administrative agencies (including the United States Congress, the Internal Revenue Service (the “IRS”), and local taxing authorities). Various proposals either have been considered previously or are presently being considered at the federal, state, and local level which could restrict the definition of tax-exempt status, impose new restrictions on the activities of tax-exempt corporations and/or tax or otherwise burden the activities of such corporations (including proposals to broaden or strengthen federal tax provisions respecting unrelated business income of nonprofit, tax-exempt corporations). There can be no assurance that future changes in the laws, rules, regulations, interpretations and policies relating to the definition, activities and/or taxation of tax-exempt corporations will not have material adverse effects on the future operations of the University.
Compliance with current and future regulations and rulings of the IRS could adversely affect the ability of the University to charge and collect revenues, finance or incur indebtedness on a tax-exempt basis or otherwise generate revenues necessary to provide for payment of the Series 2016 Bonds. Although the University has covenanted to maintain its tax-exempt status, loss of tax-exempt status by the University would likely have a significant adverse effect on the University and could result in the inclusion of interest on the Series 2016 Bonds in gross income for federal income tax purposes retroactive to their date of issue or acceleration of the maturity of the Series 2016 Bonds.
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Property Tax Assessments. A number of local taxing authorities in Pennsylvania, including the County and certain local townships and school districts, have sought to subject the facilities of nonprofit universities and colleges to local real estate taxes, primarily by challenging their status as “purely public charities” as described in the Pennsylvania Constitution, notwithstanding the fact that Pennsylvania nonprofit university and college facilities historically have been viewed as exempt from such taxes. In response to the uncertainty resulting from divergent court decisions, the Pennsylvania legislature enacted The Institutions of Purely Public Charity Act on November 26, 1997 which, among other things, sets forth specific criteria to be met by an entity in order for such entity to be deemed an “institution of purely public charity”. The criteria are highly fact-specific and are to be used by the courts as guidance; therefore, there are no assurances that the University’s facilities will meet such criteria now or in the future.
Covenant to Maintain Exempt Status of the Series 2016 Bonds. The tax-exempt status of the Series 2016 Bonds is based on the continued compliance by the Authority and the University with certain covenants contained in the Tax Compliance Agreement to be executed by the Authority and the University on the date of issuance of the Series 2016 Bonds and in the Series 2016 Indenture and the Series 2016 Loan Agreement. These covenants relate generally to restrictions on the use of facilities financed with tax-exempt bonds, arbitrage limitations, rebate of certain excess investment earnings to the federal government and restrictions on the amount of issuance costs financed with the proceeds of the Series 2016 Bonds. Failure to comply with such covenants could cause interest on the Series 2016 Bonds to become subject to federal income taxation retroactively to the date of issuance of the Series 2016 Bonds.
Certain Matters Relating to Enforceability of Obligations. The remedies available to Holders upon an Event of Default under the Series 2016 Indenture or the Series 2016 Loan Agreement are in many respects dependent upon judicial action which is subject to discretion or delay. Under existing law and judicial decisions, including specifically the United States Bankruptcy Code (the “Bankruptcy Code”), the remedies specified in the Series 2016 Indenture and the Series 2016 Loan Agreement may not be readily available or may be limited. A court may decide not to order specific performance.
The various legal opinions to be delivered concurrently with the original delivery of the Series 2016 Bonds will be qualified as to enforceability of the various legal instruments by, among other things, limitations imposed by bankruptcy, reorganization, insolvency or other similar laws or legal or equitable principles affecting creditors’ rights.
There exists statutory authority in Pennsylvania for a court to dissolve a nonprofit corporation or undertake supervision of its affairs on various grounds, including finding that such corporation is insolvent. Moreover, pursuant to the common law and statutory power to enforce charitable trusts and to see that charitable funds are applied to their intended uses, the Attorney General of the Commonwealth may commence legal proceedings to dissolve a nonprofit corporation acting contrary to its charitable purposes or to restrain actions inconsistent with the charitable use of such funds or which render such nonprofit corporation unable to discharge its charitable functions. In certain states, such actions may arise on a court’s own motion or pursuant to a petition of the attorney general or such other persons who have interests different than those of the general public. The obligations of the University may be limited by such charitable trust laws.
Potential Effects of Bankruptcy. If the University were to file a petition for relief under the Bankruptcy Code (or if such a petition were filed against the University), its revenues and certain of its accounts receivable and other property acquired after the filing would not be subject to the security interest granted under the Series 2016 Loan Agreement. The filing would operate as an automatic stay of the commencement or continuation of most judicial or other proceedings against the University and its
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property. If the bankruptcy court so ordered, the University’s property, including the Pledged University Revenues, could be used for the benefit of the University despite the claims of its creditors (including the Trustee acting on behalf of the Holders).
In the event of a bankruptcy proceeding involving the University, the Trustee could be treated under the Bankruptcy Code as the holder of a secured claim to the extent provided in the Series 2016 Loan Agreement. Among other things, the potential effects of a bankruptcy of the University could be to delay substantially the enforcement of remedies otherwise available to the Trustee and to allow the bankruptcy court, under certain circumstances (a) to subordinate the rights and liens securing the Series 2016 Bonds to any borrowing approved by the bankruptcy court, (b) to permit the University to cure defaults under the Series 2016 Loan Agreement or (c) to modify the terms of or payments due under the Series 2016 Loan Agreement.
In a bankruptcy proceeding, the University could file a plan for the adjustment of its debts which modifies, under certain circumstances, the rights of creditors generally or the rights of any class of creditors, secured or unsecured. The plan, when confirmed by the court, binds all creditors who had notice or knowledge of the plan and discharges all claims against the debtor provided for in the plan. Except as described below, no plan may be confirmed unless, among other conditions, the plan is in the best interest of creditors, is feasible and has been accepted by each class of claims impaired thereunder.
Each class of claims has accepted the plan if at least two thirds in dollar amount and more than one half in number of the allowed claims of the class that are voted with respect to the plan are cast in its favor. Even if the plan is not so accepted, it may be confirmed if the court finds, among other things, that the plan is fair and equitable with respect to each class of non accepting creditors impaired thereunder and does not discriminate unfairly. Such an approved plan could limit recoveries by the Holders and/or reduce the collateral pledged as security therefor.
Limitations on Security Interest. The security interest in the Pledged University Revenues may not be perfected with respect to items comprising Pledged University Revenues which are in the form of cash and negotiable instruments not in the possession of the Trustee. In addition, certain interests and claims of others may be on a parity with or prior to such security interests, and certain statutes and other provisions may limit the right of the University to grant such security interests. Examples of such claims, interests and provisions include, without limitation (a) statutory liens, (b) rights arising in favor of the United States of America or any agency thereof, (c) prohibitions against assignment contained in federal statutes, (d) constructive trusts, equitable liens or other rights impressed or conferred by any state or federal court in the exercise of its equitable jurisdiction, (e) federal bankruptcy laws affecting amounts earned by the University after institution of bankruptcy proceedings by the University, (f) rights of third parties in Pledged University Revenues not in the possession of the Trustee, including those converted to cash, where a security interest in those Pledged University Revenues can only be perfected by possession and (g) the requirement that appropriate continuation statements be filed in accordance with the Pennsylvania Uniform Commercial Code from time to time in effect.
Other Factors. Additional factors may affect future operations of the University to an extent that cannot be determined at this time. These factors include, among others, the following:
(1) Employee strikes and other adverse labor actions that could result in a substantial reduction in revenues without corresponding decreases in costs.
(2) Increased costs and decreased availability of public liability insurance.
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(3) Changes in the demand for higher education in general or for programs offered by the University in particular, including programs associated with TCGS.
(4) Cost and availability of energy.
(5) Higher interest rates in the future, which could prevent borrowing for needed capital expenditures.
(6) A decrease in affordable student loan funds or other aid that permits many students the opportunity to pursue higher education.
(7) An increase in the costs of health care benefits, retirement plan, or other benefit packages offered by the University to its employees and retirees.
(8) A significant decrease in the value of the University’s investments caused by market or other external factors.
(9) Claims presently unknown to the University.
(10) Withdrawal of any current exemptions from local real estate taxes, business privilege taxes and similar impositions.
(11) Reduced future University net tuition revenues as a result of a need to increase tuition discounting to attract students.
(12) Poor financial operating performance by the University in the future.
(13) Increased competition from other institutions of higher learning which may offer similar academic programs or may recruit similar students, and that may result in reduced enrollments and reduced University revenues.
(14) Increased competition from providers of programs which may be similar to the programs provided by TCGS, resulting in reduced enrollments in such programs, and therefore a reduced net income contribution to the University’s financial performance.
(15) Reduced ability to attract future annual or capital campaign contributions, that may limit future projects or the ability to address deferred maintenance and/or the support of expenses related to faculty salaries and tuition discounting.
(16) Reduced availability of qualified faculty to teach the programs offered by the University.
(17) An inability to retain students, resulting in enrollment losses and reduced revenues.
(18) Future deficits as a result of increased future expenses.
(19) A reduction in charitable pledges and other fundraising support of the University.
(20) A downgrade in the University’s bond rating to a level which prevents the University from being able to borrow at affordable rates in the future.
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CERTAIN FORWARD DELIVERY CONSIDERATIONS
General
The Authority, the University and the Underwriter will enter into the Forward Delivery Purchase Agreement for the Series 2016 Bonds. Subject to the terms of the Forward Delivery Purchase Agreement, the University expects to deliver the Series 2016 Bonds on or about January 5, 2016, or on such later date as is mutually agreed upon by the Authority, the University and the Underwriter (the “Settlement Date”).
The following is a description of certain provisions of the Forward Delivery Purchase Agreement. The following description is not to be considered a full statement of the terms of the Forward Delivery Purchase Agreement and accordingly is qualified by reference to it and is subject to the full text of it.
BY PLACING AN ORDER WITH THE UNDERWRITER FOR THE PURCHASE OF THE SERIES 2016 BONDS, EACH PURCHASER ACKNOWLEDGES AND AGREES THAT THE SERIES 2016 BONDS ARE BEING SOLD ON A “FORWARD” BASIS, AND THAT THE PURCHASER IS OBLIGATED TO ACCEPT DELIVERY OF AND PAY FOR THE SERIES 2016 BONDS ON THE SETTLEMENT DATE SUBJECT TO THE ABILITY OF THE UNDERWRITER TO TERMINATE ITS OBLIGATION TO PURCHASE THE SERIES 2016 BONDS UNDER CERTAIN CIRCUMSTANCES AS PROVIDED IN THE FORWARD DELIVERY PURCHASE AGREEMENT. THE UNDERWRITER CAN WAIVE SUCH ABILITY TO TERMINATE ITS OBLIGATION TO PURCHASE THE SERIES 2016 BONDS IN ITS SOLE DISCRETION.
Forward Delivery Purchase Agreement; Signing and Preliminary Closing
Under the Forward Delivery Purchase Agreement, the Underwriter has agreed to purchase the Series 2016 Bonds on the Settlement Date. A closing (the “Preliminary Closing”) will be held with respect to the Series 2016 Bonds on or about June 25, 2015 (the “Preliminary Closing Date”). At that time, the conditions for issuance and delayed delivery of the Series 2016 Bonds and payment therefor by the Underwriter are expected to be met, except for the confirmation of certain facts and delivery of certain certificates and opinions, including the opinion of Bond Counsel substantially in the form set forth in Appendix D to this Official Statement (the “Settlement Conditions”), which are to be delivered on the Settlement Date (receipt of which are conditions to the issuance of the Series 2016 Bonds). Upon satisfaction of the conditions to the Preliminary Closing and performance of the covenants and agreements required at or before the Preliminary Closing Date, and subject to compliance with the Settlement Conditions described below and in the Forward Delivery Purchase Agreement, the Authority will be obligated to issue the Series 2016 Bonds, and the Underwriter will be obligated to take delivery of and pay for the Series 2016 Bonds on the Settlement Date. There will no delivery of the Series 2016 Bonds or any payment therefor on the Preliminary Closing Date.
Settlement
On the Settlement Date, the Authority will, subject to the terms and conditions of the Forward Delivery Purchase Agreement, deliver the Series 2016 Bonds to DTC on behalf of the Underwriter and deliver or cause to be delivered to the Underwriter the other documents, opinions, certificates and instruments required by the Forward Delivery Purchase Agreement to be delivered, as more fully discussed below (the “Settlement Documents”). Subject to the terms and conditions of the Forward Delivery Purchase Agreement, the Underwriter will be obligated to accept such delivery and pay the purchase price of the Series 2016 Bonds. The foregoing transaction is referred to in this Official Statement as the “Settlement.”
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Conditions to Settlement
General. The University is required by the Forward Delivery Purchase Agreement, as a condition to the Settlement, to provide the Underwriter a draft of an update to this Official Statement (the “Updated Official Statement”) no later than 10 days prior to the Settlement Date. The Authority’s obligation to issue and deliver to the Underwriter and the Underwriter’s obligation to accept delivery of and pay the purchase price of the Series 2016 Bonds on the Settlement Date are subject to certain conditions precedent, as set forth in the Forward Delivery Purchase Agreement; these conditions include, among other conditions detailed in the Forward Delivery Purchase Agreement, the following:
(1) an opinion, dated the Settlement Date, of Bond Counsel in substantially the form included in this Official Statement as Appendix D; and
(2) additional opinions of Bond Counsel, counsel to the Authority, counsel to the University and Underwriter’s Counsel as to the continued accuracy of their opinions as to certain legal matters delivered at the Preliminary Closing.
Termination. The Underwriter has the right, before the time of Settlement, to cancel its obligation to purchase the Series 2016 Bonds, by written notice to the Authority and the University, if between the date of the Forward Delivery Purchase Agreement and the Settlement, certain conditions prevent the Forward Delivery Purchase Agreement from being satisfied, including, among others:
(a) Any event or circumstance occurs or information becomes known, which, in the reasonable professional judgment of the Underwriter, makes untrue any statement of a material fact set forth in the Official Statement or the Updated Official Statement or results in an omission to state a material fact necessary to make the statements made therein, in the light of the circumstances under which they were made, not misleading; or
(b) The market for the Series 2016 Bonds or the market prices of the Series 2016 Bonds or the ability of the Underwriter to enforce contracts for the sale of the Series 2016 Bonds shall have been materially and adversely affected, in the reasonable professional judgment of the Underwriter, by:
(i) An amendment to the Constitution of the United States or the Commonwealth shall have been passed or legislation shall have been introduced in or enacted by the Congress of the United States or the legislature of any state having jurisdiction of the subject matter or legislation pending in the Congress of the United States shall have been amended or legislation shall have been recommended to the Congress of the United States or to any state having jurisdiction of the subject matter or otherwise endorsed for passage (by press release, other form of notice or otherwise) by the President of the United States, the Treasury Department of the United States, the Internal Revenue Service or the Chairman or ranking minority member of the Committee on Finance of the United States Senate or the Committee on Ways and Means of the United States House of Representatives, or legislation shall have been proposed for consideration by either such Committee by any member thereof or presented as an option for consideration by either such Committee by the staff of such Committee or by the staff of the joint Committee on Taxation of the Congress of the United States, or legislation shall have been favorably reported for passage to either House of the Congress of the United States by a Committee of such House to which such legislation has been referred for consideration, or a decision shall have been rendered by a court of the United States or of the Commonwealth or the Tax Court of the United States, or a ruling shall have been made or a regulation or temporary regulation shall have been proposed or made or any other release or announcement shall have been made by the Treasury Department of the United States, the Internal Revenue Service or other federal or state authority, with respect to federal or
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Pennsylvania state taxation upon revenues or other income of the general character to be derived by the Authority or upon interest received on obligations of the general character of the Series 2016 Bonds which, in the judgment of the Underwriter, may have the purpose or effect, directly or, indirectly, of affecting the tax status of the Authority, its property or income, its securities (including the Series 2016 Bonds) or the interest thereon, or any tax exemption granted or authorized by the Commonwealth; or
(ii) The declaration of war or engagement in or escalation of military hostilities by the United States or the occurrence of any other national emergency or calamity or terrorism affecting the operation of the government of, or the financial community in, the United States; or
(iii) The declaration of a general banking moratorium by federal, New York or Commonwealth authorities; or
(iv) A default with respect to the debt obligations of the Authority or proceedings under the bankruptcy laws of the United States or of the Commonwealth shall have been instituted by the Authority; or
(v) The occurrence of a major financial crisis, a material disruption in commercial banking or securities settlement or clearance services, or a material disruption or deterioration in the fixed income or municipal securities market; or
(vi) Additional material restrictions not in force or being enforced as of the date hereof shall have been imposed upon trading in securities generally by any governmental authority or by any national securities exchange; or
(vii) There shall be in force the general suspension of trading on any national securities exchange or minimum or maximum prices for trading shall have been fixed and be in force, or maximum ranges for prices for securities shall have been required and be in force on any national exchange, whether by virtue of determination by that exchange or by order of the SEC or any other governmental authority having jurisdiction; or
(c) Legislation enacted, introduced in the Congress or recommended for passage by the President of the United States, or a decision rendered by a court established under Article III of the Constitution of the United States or by the Tax Court of the United States, or an order, ruling, regulation (final, temporary or proposed) or official statement issued or made by or on behalf of the SEC, or any other governmental agency having jurisdiction of the subject matter shall have been made or issued to the effect that the Series 2016 Bonds, other securities of the Authority or obligations of the general character of the Series 2016 Bonds are not exempt from registration under the Securities Act of 1933 (the “1933 Act”), or that the Indenture is not exempt from qualification under the Trust Indenture Act of 1939, as amended (the “Trust Indenture Act”); or
(d) Any change shall have occurred in or particularly affecting the Authority, the University, the Act, the Resolution adopted by the Authority authorizing the issuance of the Series 2016 Bonds (the “Resolution”), the Indenture, the Loan Agreement, the Escrow Agreement, the Tax Compliance Agreement delivered by the Authority and the University in connection with the issuance of the Series 2016 Bonds, the Continuing Disclosure Agreement, the Intercreditor Agreement or the Forward Delivery Purchase Agreement (collectively, the “Financing Documents”) or the Pledged University Revenues as the foregoing matters are described in the Official Statement, which in the professional judgment of the Underwriter materially impairs the investment quality of the Series 2016 Bonds; or
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(e) An order, decree or injunction of any court of competent jurisdiction, shall have been issued or made to the effect that the issuance, offering or sale of obligations of the general character of the Series 2016 Bonds, or the issuance, offering or sale of the Series 2016 Bonds, including any or all underlying obligations, as contemplated by the Forward Delivery Purchase Agreement or by the Official Statement or the Updated Official Statement, is or would be in violation of any applicable law, rule or regulation, including (without limitation) any provision of applicable federal securities laws as amended and then in effect; or
(f) A stop order, ruling, regulation or official statement by the SEC or any other governmental agency having jurisdiction of the subject matter shall have been issued or made or any other event occurs, the effect of which is that the issuance, offering or sale of the Series 2016 Bonds, or the execution and delivery of any of the Financing Documents, as contemplated by the Forward Delivery Purchase Agreement or by the Official Statement or the Updated Official Statement, is or would be in violation of any applicable law, rule or regulation, including (without limitation) any provision of applicable federal securities laws, including the 1933 Act, the Securities Exchange Act of 1934 or the Trust Indenture Act, each as amended and as then in effect; or
(g) Any litigation shall be instituted or be pending at the time of the Settlement Date to restrain or enjoin the issuance, sale or delivery of the Series 2016 Bonds, or in any way contesting or affecting any authority for or the validity of the proceedings authorizing and approving the Act, the Resolution, the Financing Documents or the existence or powers of the Authority or the University in connection with their respective obligations thereunder; or
(h) Standard & Poor’s shall not have assigned to the Series 2016 Bonds a long-term rating of “BBB” or such rating, if assigned, shall have been reduced or withdrawn as of the Settlement Date.
Issuance of Legal Opinions. It is a condition to the issuance of the Series 2016 Bonds on the Settlement Date that Bond Counsel deliver its final approving opinion in substantially the form attached hereto as Appendix D. The ability of Bond Counsel to deliver such opinion on the Settlement Date is subject to its review and analysis as of the Settlement Date of certain matters, including, among others, pertinent provisions of statutes, regulations, rulings and court decisions, including, but not necessarily limited to, Pennsylvania law and federal income tax law then in effect or proposed to be in effect. Bond Counsel has advised the Authority, the University and the Underwriter that, subject to such review and analysis and certain assumptions, it expects to be able to issue on the Settlement Date an opinion substantially in the form attached hereto as Appendix D. Issuance of the Series 2016 Bonds on the Settlement Date is further conditioned on the receipt of the other opinions of Bond Counsel, counsel to the Authority, counsel to the University and counsel to the Underwriter or as to the continued accuracy of their opinions as certain additional legal matters initially addressed in the respective opinions delivered by such counsel on the Preliminary Closing Date.
Additional Risks Related to the Delayed Delivery Period
During the period between the date of the Forward Delivery Purchase Agreement and the Settlement Date (the “Delayed Delivery Period”), certain information contained in this Official Statement could change in material respects. The University has agreed to provide the Underwriter a draft of the Updated Official Statement at least 10 days before the Settlement Date. Purchasers of the Series 2016 Bonds will be subject to the risk of material changes in the information provided in the Updated Official Statement from that provided in this Official Statement and other risks, some of which are described below, and none of which will constitute grounds for purchasers to refuse to accept delivery of and pay for the Series 2016 Bonds unless the Underwriter determines that such material changes give rise to its
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right to termination under the Forward Delivery Purchase Agreement, as described above under “Conditions to Settlement -- Termination”.
Ratings Risk. The Series 2016 Bonds are currently rated “BBB” by Standard & Poor’s. See “RATING” herein. No assurances can be given that the rating assigned to the Series 2016 Bonds on the Settlement Date will not be different from the rating currently assigned to the Series 2016 Bonds.
Secondary Market Risk. While the Underwriter may make a secondary market in the Series 2016 Bonds during the Delayed Delivery Period, no assurances can be given that the Underwriter will be successful in establishing such a secondary market or, if one is established, that it will be maintained or that the Series 2016 Bonds can be sold for any particular price. Prospective purchasers of the Series 2016 Bonds should assume that the Series 2016 Bonds will be illiquid throughout the Delayed Delivery Period.
Market Value Risk. The market value of the Series 2016 Bonds as of the Settlement Date may be affected by a variety of factors including, without limitation, general market conditions, the ratings then assigned to the Series 2016 Bonds, the financial condition and business operations of the University and federal, state and local income tax and other laws. The market value of the Series 2016 Bonds as of the Settlement Date could therefore be higher or lower than the purchase price to be paid by the initial purchasers of the Series 2016 Bonds and that difference could be substantial. The Underwriter will, nevertheless, be obligated to take delivery of and pay the purchase price of the Series 2016 Bonds if the Settlement Conditions described above are satisfied. Neither the University nor the Underwriter make any representation as to the expected market price of the Series 2016 Bonds as of the Settlement Date. Further, no assurance can be given that the introduction or enactment of any future legislation will not affect the market price for the Series 2016 Bonds as of the Settlement Date or thereafter or not have a materially adverse impact on any secondary market for the Series 2016 Bonds.
Tax Law Risk. The Forward Delivery Purchase Agreement obligates the Authority to deliver and the Underwriter to purchase the Series 2016 Bonds if the Authority receives the opinion of Bond Counsel substantially in the form set forth in Appendix D hereto to the effect that the interest on the Series 2016 Bonds is not includable in the gross income of the holders thereof for federal income tax purposes as of the Settlement Date (as described in “CERTAIN TAX MATTERS”). Legislation could be introduced in the United States Congress that, if adopted, would reform the system of federal taxation generally or the tax consequences of ownership and/or transfer of obligations of the nature of the Series 2016 Bonds. That legislation could either (a) eliminate the exclusion from gross income for federal income tax purposes of interest payable on bonds such as the Series 2016 Bonds, or (b) diminish the value of such exclusion. If legislation is enacted which eliminates the exclusion for federal income tax purposes of interest payable on bonds such as the Series 2016 Bonds, it is expected that Bond Counsel will not delivers its approving opinion in the form attached hereto as Appendix D and, therefore, that the Series 2016 Bonds will not be issued and delivered to the Underwriter and will not be available for delivery to the purchasers. If the enactment of legislation only diminishes the value, as opposed to eliminating the exclusion from gross income for federal income tax purposes and Bond Counsel delivers its approving opinion in the form attached hereto as Appendix D without any material change other than references to such diminishment in value, the Underwriter would not have the right to terminate their obligations under the Forward Delivery Purchase Agreement, and in such event, the purchasers would be required to accept delivery of the Series 2016 Bonds. Prospective purchasers are encouraged to consult their tax advisors regarding the likelihood that legislation affecting the treatment of interest on the Series 2016 Bonds may be enacted and the consequences of such enactment for the purchasers.
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ABSENCE OF LITIGATION
The Authority
There is no litigation of any nature currently pending or threatened against the Authority seeking to restrain or enjoin the issuance, sale, execution or delivery of the Series 2016 Bonds or in any way contesting or affecting the validity of the Series 2016 Bonds, the Series 2016 Indenture, the Series 2016 Loan Agreement or any proceedings of the Authority taken in connection with the issuance or sale of the Series 2016 Bonds, the pledge or application of any moneys or security provided for the payment of the Series 2016 Bonds, or the existence or powers of the Authority.
The University
There is no litigation, individually or in the aggregate, currently pending or, to the knowledge of the University, threatened against the University which could have a material adverse affect on its financial condition or which could affect the validity or enforceability of the Series 2016 Loan Agreement or which in any way contests the existence or powers of the University.
CERTAIN TAX MATTERS
Federal
Exclusion of Interest From Gross Income. In the opinion of Bond Counsel, under existing statutes, regulations, rulings and court decisions, interest on the Series 2016 Bonds is excluded from gross income of the holders thereof for federal income tax purposes, assuming continuing compliance by the Authority and the University with the requirements of the Code. Interest on the Series 2016 Bonds will not be a specific preference item for purposes of computing the federal alternative minimum tax (the “AMT”); however interest on the Series 2016 Bonds held by certain corporations is included in the computation of “adjusted current earnings,” a portion of which is taken into account in determining the AMT imposed on such corporations.
In rendering its opinion, Bond Counsel has assumed compliance by each of the Authority and the University with its covenants contained in the Series 2016 Indenture and the representations in the Tax Compliance Agreement executed by the Authority and University on the date of issuance of the Series 2016 Bonds relating to actions to be taken by the Authority and the University after the issuance of the Series 2016 Bonds necessary to effect or maintain the exclusion from gross income of the interest on the Series 2016 Bonds for federal income tax purposes. These covenants and representations relate to, inter alia, the use and investment of proceeds of the Series 2016 Bonds and the rebate to the United States Department of Treasury of specified arbitrage earnings, if any. Failure to comply with such covenants could result in the interest on the Series 2016 Bonds becoming includible in gross income for federal income tax purposes from the date of issuance of the Series 2016 Bonds.
Other Federal Tax Matters. Ownership or disposition of the Series 2016 Bonds may result in other federal tax consequences to certain taxpayers, including, without limitation, certain S corporations, foreign corporations with branches in the United States, holders of an interest in a financial asset securitization investment trust, property and casualty insurance companies, individuals who otherwise qualify for the earned income credit and taxpayers who have an initial basis in the Series 2016 Bonds greater or less than the principal amount thereof, individual recipients of Social Security or Railroad Retirement benefits, and taxpayers, including banks, thrift institutions and other financial institutions subject to Section 265 of the Code, who may be deemed to have incurred or continued indebtedness to purchase or to carry the Series 2016 Bonds.
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Bond Counsel is not rendering any opinion as to any federal tax matters other than those described under the caption “Exclusion of Interest From Gross Income” above and expressly stated in the Proposed Form of Opinion of Bond Counsel included as APPENDIX D to this Official Statement. Purchasers of the Series 2016 Bonds should consult their independent tax advisors with regard to all federal tax matters.
Pennsylvania
In the opinion of Bond Counsel, under the laws of the Commonwealth of Pennsylvania as enacted and construed on the date hereof, interest on the Series 2016 Bonds is exempt from Pennsylvania personal income tax and Pennsylvania corporate net income tax, and the Series 2016 Bonds are exempt from personal property taxes in Pennsylvania; however, under the laws of the Commonwealth of Pennsylvania, as enacted and construed on the date hereof, any profits, gains or income derived from the sale, exchange or other disposition of the Series 2016 Bonds will be subject to Pennsylvania taxes and local taxes within the Commonwealth.
Other
The Series 2016 Bonds and the interest thereon may be subject to state or local taxes in jurisdictions other than the Commonwealth of Pennsylvania under applicable state or local tax laws.
Purchasers of the Series 2016 Bonds should consult their independent tax advisors with regard to all state and local tax matters that may affect them.
POTENTIAL CHANGES IN FEDERAL OR STATE TAX LAWS
Current and future legislative proposals, if enacted into law, clarifications of the Code or state or local tax law or court decisions may cause interest on the Series 2016 Bonds to be subject, directly or indirectly, in whole or in part, to federal income taxation or to be subject to state income taxation, or otherwise prevent Owners from realizing the full current benefit of the tax status of such interest. The introduction or enactment of any such legislative proposals or clarification of the Code or court decisions may also affect, perhaps significantly, the market prices for, or marketability of, the Series 2016 Bonds. Prospective purchasers of the Series 2016 Bonds should consult their own tax advisors regarding the potential impact of any pending or proposed federal or state tax legislation or regulations.
See “CERTAIN FORWARD DELIVERY CONSIDERATIONS – Additional Risks Related to the Delayed Delivery Period – Tax Law Risk” for a description of certain considerations relating to changes in tax law that may occur during the Delayed Delivery Period.
VERIFICATION OF MATHEMATICAL COMPUTATIONS
The arithmetical accuracy of certain computations included in the schedules provided by Merrill Lynch, Pierce, Fenner & Smith Incorporated on behalf of the University relating to (i) the computation of forecasted receipts of principal of and interest on the Government Obligations on deposit in the Escrow Fund and the forecasted payments of principal and interest to redeem the Prior Bonds and (ii) the computation of the yield on the Series 2016 Bonds and the Government Obligations will be verified by Causey Demgen & Moore P.C. Such computations are based solely upon schedules and information supplied by or on behalf of the University. Causey Demgen & Moore P.C. will express no opinion on the
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assumptions provided to it, nor as to the exemption from taxation of the interest on the Series 2016 Bonds.
LEGAL MATTERS
Certain legal matters incident to the authorization, issuance and sale of the Series 2016 Bonds are subject to the approval of Eckert Seamans Cherin & Mellott, LLC, Philadelphia, Pennsylvania, Bond Counsel, whose opinion will be delivered to the Underwriter at the time of the delivery of the Series 2016 Bonds. Certain legal matters will be passed upon for the Authority by its counsel, Douglas B. Breidenbach, Jr., Esquire, Pottstown, Pennsylvania, for the University by its General Counsel, Michael Korolishin, Esquire, and for the Underwriter by its counsel, Ballard Spahr LLP, Philadelphia, Pennsylvania.
FINANCIAL STATEMENTS
The financial statements of the University for the fiscal year ended May 31, 2014 included in APPENDIX B hereto have been audited by Baker Tilly Virchow Krause, LLP, a firm of independent certified public accountants, to the extent and for the periods indicated in their report which appears in APPENDIX B and the financial statements of the University for the eleven months ended May 31, 2013 included in APPENDIX B hereto have been audited by ParenteBeard LLC, a firm of independent certified public accountants, to the extent and for the periods indicated in their report which appears in APPENDIX B. ParenteBeard LLC merged into Baker Tilly Virchow Krause, LLP on October 1, 2014. As such, Baker Tilly Virchow Krause, LLP is the successor firm to ParenteBeard LLC.
UNDERWRITING
Merrill Lynch, Pierce, Fenner & Smith Incorporated (the “Underwriter”) has entered into a Forward Delivery Purchase Agreement to purchase the Series 2016 Bonds from the Authority at an aggregate purchase price of $10,478,118.82 (representing the principal amount of the Series 2016 Bonds of $9,960,000.00, plus original issue premium of $629,700.75, less an Underwriter’s discount of $111,581.93). The University has indemnified the Underwriter against certain liabilities in connection with the offering and sale of the Series 2016 Bonds.
The Forward Delivery Purchase Agreement provides that the obligation of the Underwriter to purchase the Series 2016 Bonds is subject to certain terms and conditions set forth in the Forward Delivery Purchase Agreement, including, among other things, that (1) there has been no material change in the condition of the University from that set forth herein, (2) no event has occurred which impairs or threatens to impair the status of the interest on the Series 2016 Bonds as exempt from federal income taxation, and (3) proceedings relating to the Series 2016 Bonds are not pending or threatened by the Securities and Exchange Commission. See “CERTAIN FORWARD DELIVERY CONSIDERATIONS – Conditions to Settlement” herein. The terms of sale provide that the Underwriter will purchase all the Series 2015 Bonds, if any are purchased.
The initial public offering prices set forth on the inside cover page of this Official Statement may be changed from time to time by the Underwriter without any requirement of prior notice. The Underwriter may offer and sell the Series 2016 Bonds to certain dealers (including dealers depositing the Series 2016 Bonds into investment trusts) and others at prices lower than the initial public offering prices stated on the inside cover page hereof.
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The Underwriter is a full service financial institution engaged in various activities, which may include sales and trading, commercial and investment banking, advisory, investment management, investment research, principal investment, hedging, market making, brokerage and other financial and non-financial activities and services. Under certain circumstances, the Underwriter and its affiliates may have certain creditor and/or other rights against the Authority and the University in connection with such activities. In the various course of their various business activities, the Underwriter and its affiliates, officers, directors and employees may purchase, sell or hold a broad array of investments and actively trade securities, derivatives, loans, commodities, currencies, credit default swaps and other financial instruments for their own account and for the accounts of their customers, and such investment and trading activities may involve or relate to assets, securities and/or instruments of the Authority and the University (directly, as collateral securing other obligations or otherwise) and/or persons and entities with relationships with the Authority and the University. The Underwriter and its affiliates may also communicate independent investment recommendations, market color or trading ideas and/or publish or express independent research views in respect of such assets, securities or instruments and may at any time hold, or recommend to clients that they should acquire, long and/or short positions in such assets, securities and instruments.
RATING
Standard & Poor’s has assigned the Series 2016 Bonds a rating of “BBB”, together with a stable outlook. The rating and outlook reflect only the views of such organization and an explanation of the significance of such rating may be obtained from Standard & Poor’s. There is no assurance that the rating and/or the outlook will continue for any given period of time or that the rating may not be raised, lowered or withdrawn entirely or the outlook changed if, in the judgment of Standard & Poor’s, circumstances so warrant. Any downward change in the rating or outlook, or withdrawal of such rating may have an adverse effect on the price at which the Series 2016 Bonds may be resold. Neither the Authority nor the Underwriter has assumed any responsibility to advise the Holders of the Series 2016 Bonds of any change in any rating on the Series 2016 Bonds or to maintain any particular rating on the Series 2016 Bonds.
CONTINUING DISCLOSURE
The Authority has determined that no financial information or operating data concerning the Authority is material to any decision to purchase, hold or sell the Series 2016 Bonds and the Authority will not provide any such information. The University has undertaken all responsibility for any continuing disclosure to the Holders as described below, and the Authority shall have no liability to the Holders or any other person with respect to such disclosure.
In order to satisfy the requirements of Rule 15c2-12 (the “Rule”) promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934, the University and the Trustee will enter into a Continuing Disclosure Agreement (the “Continuing Disclosure Agreement”) for the benefit of owners of the Series 2016 Bonds. Pursuant to such agreement, the University will covenant to file, either directly or through a dissemination agent, with the Municipal Securities Rulemaking Board’s (“MSRB”) Electronic Municipal Market Access (EMMA) System (http://emma.msrb.org), certain annual financial information, including audited financial statements and operating data and to provide notice to the MSRB of certain events, pursuant to the requirements of the Rule. The Form of the Continuing Disclosure Agreement is included as APPENDIX E to this Official Statement.
A failure by the University to comply with the Continuing Disclosure Agreement will not constitute a default or Event of Default under the Series 2016 Indenture or the Series 2016 Loan Agreement, and the holders of the Series 2016 Bonds will have only the remedies set forth in the Continuing Disclosure Agreement itself. Nevertheless, a failure to make an annual filing under the
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Continuing Disclosure Agreement must be reported in accordance with the Rule and may be expected to be considered by any broker, dealer or municipal securities dealer before recommending the purchase or sale of the Series 2016 Bonds in the secondary market. Consequently, such a failure may adversely affect the transferability and liquidity of the Series 2016 Bonds and their market price.
In connection with the issuance of the 2006 Bonds, the 2010 Bonds and the 2013 Bonds, the University executed continuing disclosure agreements (the “Undertakings”), similar to the Continuing Disclosure Agreement, which require the University to file with the MSRB its annual audited financial statements and an update of financial and operating data (the “Annual Report”) within 150 days of the University’s fiscal year-end and also to file notice of certain enumerated events. During the last five years, certain required filings were not made within the required time period. For the fiscal years ended June 30, 2010 through June 30, 2012, the Annual Report was filed on EMMA between 45 and 90 days after the applicable deadline and for the eleven-month period ended May 31, 2013, the audited financial statements were filed on EMMA approximately 80 days after the applicable deadline and the annual operating data was not filed until May 2015. Most of the required information was otherwise publicly available on EMMA in an official statement for the 2013 Bonds which was filed in November 2013. The Annual Report for the fiscal year ended May 31, 2014 was filed in a timely manner. In addition, (i) the Annual Reports for the last five years did not include information regarding graduate student fees, which was required to be included pursuant to the University’s Undertakings with respect to the 2006 Bonds (but not its Undertakings with respect to the 2010 Bonds or 2013 Bonds or under the Continuing Disclosure Agreement), (ii) the University did not file an event notice with respect to numerous ratings downgrades of the 2006 Bonds due to downgrades of the insurer of the 2006 Bonds, and (iii) the University did not file an event notice with respect to a downgrade of the rating on the 2010 Bonds and the underlying rating on the 2006 Bonds that occurred in November 2013 in connection with the issuance of the 2013 Bonds. The University has now filed all required reports and notices.
The University intends to fully comply with all current and future continuing disclosure undertakings, compliance with which will be overseen by the Controller of the University. The University has put in place internal procedures to ensure all future filings are completed on a timely basis in accordance with the Rule.
MISCELLANEOUS
The references herein to the Series 2016 Indenture, the Series 2016 Loan Agreement, the Continuing Disclosure Agreement, statutes and other materials are only brief outlines of certain provisions thereof and do not purport to summarize or describe all the provisions thereof, copies of which will be furnished by the Authority upon request.
The information contained in this Official Statement has been compiled or prepared under the direction of the Authority from official and other sources deemed to be reliable and, although not guaranteed as to completeness or accuracy, is believed to be correct as of this date. Statements involving matters of opinion, whether or not expressly so stated, are intended as such and not as representations of fact.
The information contained in this Official Statement should not be construed as representing all of the conditions affecting the Authority, the University or the Series 2016 Bonds.
The University has approved the use and distribution of this Official Statement in connection with the issuance and sale of the Series 2016 Bonds.
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The execution and delivery of the Official Statement has been duly authorized by the Authority and the University.
MONTGOMERY COUNTY HIGHER EDUCATION AND HEALTH AUTHORITY
By: /s/ James A. Konnick Chairman APPROVED:
ARCADIA UNIVERSITY
By: /s/ Leonard Sippel Vice President for Finance and Administration
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APPENDIX A
CERTAIN INFORMATION REGARDING ARCADIA UNIVERSITY
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Introduction and History
Arcadia University (the “University” or “Arcadia”), was founded in 1853 in Beaver, Pennsylvania, in the western part of the state, as Beaver Female Seminary. It was one of the country’s first private institutions to provide women with an education equivalent to that offered to men. In 1872 the school attained collegiate status and changed its name to Beaver College. Beaver College moved to Jenkintown, Pennsylvania, near Philadelphia, in 1925 and acquired its present campus in nearby Glenside, Pennsylvania, in 1928. Two campus locations were maintained until 1962, when its activities were consolidated at the Glenside campus. In 1972 Beaver College became a coeducational institution, and in 2001 it was approved for university status by the Pennsylvania State Department of Education and renamed Arcadia University. For fall 2014, the University had a full-time equivalent (“FTE”) enrollment of 3,229 students and a total headcount of 3,939 students (2,594 undergraduate and 1,345 graduate students).
Originally under the auspices of the Methodist Episcopal Church, there exists an historic relationship with the Presbyterian Church (U.S.A.); however, the University is currently independent of any church control and fosters an ecumenical spirit.
The University’s campus is the former country estate of William Welsh Harrison. Grey Towers Castle, the principal building on the former estate, is a formal National Historic Landmark. The campus takes its character from the original massive stone buildings of the estate in a natural setting of wooded slopes and open rolling lawns.
Since 1948, Arcadia University has offered international programs for students to gain a global perspective as part of their undergraduate education. Through the Center for Education Abroad, and now The College of Global Studies, Arcadia has educated overseas more than 60,000 students from more than 350 colleges and universities in the United States.
Arcadia has also developed two satellite campuses: one in Christiana, Delaware, and one in King of Prussia, Pennsylvania, to expand offerings in the region. The University currently offers 49 undergraduate programs leading to the degrees of Bachelor of Arts, Bachelor of Science and Bachelor of Fine Arts. At the graduate level, the University offers 14 degree programs at the Masters level, two doctorate programs, six dual degree programs and 19 graduate certificate programs.
Mission Statement
Arcadia University provides a distinctively global, integrative, and personal learning experience for intellectually curious undergraduate and graduate students in preparation for a life of scholarship, service, and professional contribution.
Vision Statement
Building upon its legacy of distinction in global education, Arcadia University will be a vibrant and supportive community of diverse scholars and learners; renowned for its high-quality faculty, staff, and students; acclaimed for its student-centered focus; and valued for making a difference in the lives of its graduates.
Governance of the University
Governance of the University rests with the Board of Trustees (the “Board”). The Board consists of no fewer than 18 or more than 50 trustees; at least 30 percent of the trustees are required to be University alumni. There are four classifications for trustees: term, recent graduate, honorary and ex-officio. The only trustees entitled to vote on any matter are term, recent graduate and ex- officio. Trustees are elected by a two-thirds (2/3) vote of Trustees present at the meeting where an election is held. Trustees serve for four-year terms and serve no more than three four-year terms. Recent graduate trustees serve for two years. Recent graduate trustees who have served for one two-year term, including any partial terms, are not eligible to serve again as a trustee until one year has elapsed after the end of their term. The Board may grant an exception to these maximum term limits subject to the needs of the University. The Board is organized into an Executive Committee, which exercises all the powers of the Board when the Board is not in session (except for certain actions which require approval of the full Board), and seven standing committees that conduct much of the deliberative and investigative work of the Board. These committees contain administrators, faculty, and, where pertinent, student representatives.
From time to time, the University does business with firms with which a Trustee is affiliated. Such transactions are permitted only if they are on terms no less favorable to the University than could be obtained from unrelated parties and the Trustee discloses the conflict and abstains from voting on any matters related thereto.
The current members of the Board are set forth below.
A-2 Board of Trustees
Christopher R. van de Velde Thomas S. Johnston ‘96 Chair of the Board Chief Executive Officer Former Township Manager Mucosis Whitemarsh Township Term Expires: February 30, 2018 Term Expires: June 30, 2018 Richard L. Jones Jr. Jo Bennett, J.D., SPHR Retired President and CEA Vice Chair of the Board Abington Memorial Hospital Partner, Stevens & Lee, P.C. Term Expires: June 30, 2018 Term Expires: June 30, 2018 Mark K. Kessler Madeline J. Stein, ‘68 Senior Vice President and General Counsel Vice Chair of the Board Toll Brothers, Inc. Community Volunteer Term Expires: June 30, 2015 Term Expires: June 30, 2018 Laura M. Korman ‘89, ‘95M Patricia DeBow ‘02 Community Volunteer Secretary of the Board Term Expires: June 30, 2018 Strategy Consultant, Accenture Term Expires: June 30, 2018 Babette Senker Krug ‘68, 81M Retired school teacher Dr. Joycellen Young Auritt ‘71 Term Expires: June 30, 2018 Licensed Psychologist Term Expires: June 30, 2018 Nancy R. Kyle Corporate Communications and Investor Joan N. Brantz, ‘65 Relations Specialist Retired Immigration Social Worker Term Expires: June 30, 2018 Term Expires: June 30, 2018 Toya Lawson ‘00 Mr. Lawrence R. Catuzzi Recruiter Retired Investment Banker and College Lordi Consulting Football Coach Peopleflex Accounting Professionals Term Expires: February 28, 2019 Term Expires: June 30, 2015
Thora T. Easton ‘68 Charles W. Lentz, ‘03M Retired Global Education Consultant Principal and Marketing Manager McKinley Elementary, Abington Township Term Expires: June 30, 2018 Term Expires: June 30, 2018
Danielle S. Frank ’12 Ana Pujols McKee, M.D. Term Expires: June 30, 2018 Executive Vice President and Chief Medical Officer Jean S. Hassler ‘00M Term Expires: June 30, 2018 Former nurse, teacher Term Expires: June 30, 2018 Alison L. Aaron Madsen, Esq. ‘85 Attorney John W. Hlywak Jr. Term Expires: June 30, 2018 Principal , The William Group, Inc. Term Expires: June 30, 2018
A-3 Thomas P. McCollum, ‘83 William U. Westerfield Co-founder Retired Partner, PriceWaterhouse Coopers Bull’s Eye, Sales and Marketing Firm Term Expires: February 28, 2019 Term Expires: June 30, 2018 Theodore V. Wood, Jr. Marc McKenna, M.D. Retired President Physician, Chestnut Hill Family Practice Tigaco, Inc. Term Expires: June 30, 2018 Term Expires: June 30, 2018
Hugh G. Moulton, Esq. Ex-Officio Trustee Retired Executive Vice President Unisource Worldwide, Inc. Dr. Nicolette DeVille Christensen Term Expires: June 30, 2018 President Arcadia University David A. Plastino Retired, Senior VP of private Banking, UBS Trustees Emeritus Financial Services, Inc. Term Expires: February 28, 2019 Dr. Ellington M. Beavers, ‘93H-Deceased Chairman Clair M. Raubenstine, CPA, CMA, CFM Biocoat, Inc. Retired Executive Vice President and CFO PHH Corporation Marilyn Sunners Cranin ‘54 Term Expires: June 30, 2018 Landscape Designer
Dr. Theresa Rollins Beverly Rappaport Goldberg, ‘53 Former Associate Professor of Accounting Former Executive Villanova University Abington Memorial Hospital Term Expires: June 30, 2015 Ann N. Greene Gerald B. Rorer Retired Assistant to the Dean of Admissions Real Estate Investor University of Pennsylvania Term Expires: June 30, 2018 Daniel J. Paracka Sidney Rosenblatt Consultant Executive Vice President, CFO, Director The Rand Group Universal Display Corporation Term Expires: February 28, 2019 Dr. John M. Templeton, Jr., ‘89H President Dr. Allison Rossett, ‘68 The John Templeton Foundation Principal, Allison Rossett & Associates Term Expires: June 30, 2018 Lowell S. Thomas, Jr. ‘01H Of Counsel Andrew Santagata, ‘10 Saul Ewing LLP NALP/NAA Certified Leasing Specialist Segal and Segal Inc. Frank G. Vitetta Term Expires: June 30, 2018 Chair, VITETTA
Lyanne Wassermann, ‘61 Life Trustee Retired Non-profit Manager and Community Rosemary Deniken Blankley ’57, ‘06H Volunteer National Chair of the Arcadia University Term Expires: June 30, 2018 Annual Fund
A-4 Principal Administrative Officers of the University
The President is the Chief Executive Officer (CEO) of the University. The President administers the University on a day-to-day basis through an executive staff consisting of the Vice Presidents for Academic Affairs, Finance and Administration, University Relations, Enrollment Management and Student Affairs, University Advancement, and The College of Global Studies, as well as the Director of Athletics and Recreation.
Dr. Nicolette DeVille Christensen was appointed President of the University by the Board on October 11, 2013. She previously held the position of Executive Director for The College of Global Studies. Dr. Christensen is a globally recognized scholar and leader in international education, noted for such initiatives as creating the award-winning Center for Research and Assessment, a unit that developed the international education program assessment model ATLAS; appointing a full-time Health, Safety, and Security Director to oversee all Arcadia programs, staff, and centers worldwide; and expanding Arcadia’s global footprint by establishing new centers in Barcelona, Dublin, Edinburgh, Havana, Istanbul, London, Melbourne, Rome, Sicily, and Valparaiso. Under her leadership, The College of Global Studies has been recognized by the American Association of University Administrators (AAUA) and the Pennsylvania Council for International Education (PaCIE). Dr. Christensen also is noted for establishing the Global Scholar Award and the Award for Teaching Excellence to mark student and faculty contributions to international education. Prior to joining Arcadia in 2008, Dr. Christensen served as Executive Director for Global Academic Management at New York University. She has more than 20 years of experience in a variety of roles in higher education and business, including serving as a tenured faculty member (business management and marketing) and senior study abroad administrator at Guilford College in Greensboro, N.C., as well as an international education consultant. Dr. Christensen serves on several task forces, committees, and professional boards, including the Association of International Education Administrators, the Special Olympics Advisory Board, the United Nations Task Force on Education, and the United Nations Commission on Disarmament Education, Conflict Resolution, and Peace (founded by the International Association of University Presidents in conjunction with the UN). She earned a doctorate in Leadership and Cultural Foundations from the University of North Carolina, Greensboro, a master of business administration from the University of North Texas, and a bachelor of science degree from the College of St. Mary in Nebraska.
Dr. Matthew Golden is Vice President for University Relations. He was appointed to this position in October, 2014 to lead Arcadia’s newly formed University Relations Unit. Dr. Golden has extensive experience in strategic communications and external relations in higher education. Prior to coming to Arcadia, Dr. Golden, was associate vice president for communications, marketing, and branding at New Jersey Institute of Technology (NJIT). He directed NJIT’s internal, external, and strategic communications, including media relations, emergency communications, publications, and marketing and editorial services. Prior to NJIT, he served in a similar capacity for nearly nine years at the College of New Jersey, where he enhanced media relations, executive communications, and supported government, community, and alumni relations initiatives. Dr. Golden earned a Doctor of Education in Higher Education Administration and Leadership from The George Washington University, a Master of Communications from Rutgers University, and a Bachelor of Arts in Sociology from Princeton University. He brings to Arcadia extensive crisis management experience after having
A-5 successfully completed training with the Department of Homeland Security and Federal Emergency Management Agency’s Enhanced Incident Management Command program.
Dr. Barbara F. Nodine is Provost and Vice President for Academic Affairs. Dr. Nodine, who also is a professor of psychology, joined Arcadia in 1970 as a faculty member in the Psychology Department. She also has held several academic leadership positions at Arcadia, including chair of the Psychology Department and interim dean of the College of Arts and Sciences. During her tenure at Arcadia, Nodine has been recognized for her research and work in the applications of cognitive psychology to teaching and learning and has maintained a deep dedication to the research-based, student-centered curriculum that guides the Psychology Department at Arcadia. Dr. Nodine earned a bachelor’s degree at Bucknell University and a doctorate at the University of Massachusetts. Awards she has received for her scholarship and teaching include the American Psychological Foundation Distinguished Teaching Award; the American Psychological Association Teaching Excellence Award, and at Arcadia, the CASE Professor of the Year and the Lindback Foundation Award for Distinction Teaching.
Mark Lapreziosa was appointed Vice President of Enrollment Management and Student Affairs in July 2011. His tenure with Arcadia is 30 years strong, growing the office from an Admissions Office to a comprehensive Office of Enrollment Management, which includes admissions, financial aid and the One-Stop Shop. Arcadia has delivered the largest classes in its history under his management, which includes being a leader in the significant increases in student retention. Mr. Lapreziosa is a member of the National Association for College Admission Counseling (NACAC), the Pennsylvania Association for College Admission Counseling (PACAC), the American Association of Collegiate Registrars and Admissions Officers (AACRAO), and NAFSA: the Association of International Educators. He earned a degree in American Government from the University of Virginia.
Mary McRea was appointed Vice President for University Advancement in August 2012. She leads the University’s business development, alumni, and fundraising operations through the Offices of Alumni Relations and Development. Ms. McRae has more than 20 years of fundraising and donor relations experience. Prior to joining Arcadia, she served as Vice President for University Advancement for Rowan University, where she redirected alumni activities to increase participation, restructured the fundraising and donor stewardship operations, expanded the Rowan Foundation, and laid the groundwork for a comprehensive capital campaign. Before her tenure at Rowan, Ms. McRae was Associate Vice President for Development at Villanova University, where she helped lead successful capital and annual giving campaigns, launched a parents’ program, and increased corporate and foundation giving.
Leonard Sippel, CPA, M.B.A is Vice President for Finance and Administration and Treasurer of Arcadia University. Mr. Sippel is responsible for all financial and administrative functions at the University. He has more than 40 years of higher education experience in the planning, finance, and administrative fields at such prestigious institutions as Pace University, City Colleges of Chicago, The College of Saint Rose, Wayne County Community College, Old Dominion University, The East West Center, The University of Wisconsin-Stevens Point, and the New York State Higher Education Services Corporation. Mr. Sippel received a master of business administration degree with concentrations in accounting and finance from the University of Wisconsin – Oshkosh and a bachelor of science degree in Mathematics, Business Administration, and Economics, with a minor in Computer Science, from the University of
A-6 Wisconsin – Stevens Point. Mr. Sippel is serving as the Vice President for Finance and Administration and Treasurer for Arcadia under a two-year contract with the “Registry for College & University Presidents.” This contract will expire at the end of June 2015, and may be renewed on a month to month basis as needed. The University has begun the search process and expects a replacement to be hired prior to the termination of Mr. Sippel’s contract.
James E. Cooper was appointed Associate Vice President for Finance effective May 4, 2015. Mr. Cooper has more than 25 years of higher education financial management experience. Prior to coming to Arcadia, Mr. Cooper served as Associate Vice President of Finance and Controller at Ursinus College. At Ursinus, he was responsible for the oversight, development, and management of the College’s financial policies and procedures. He implemented its Blackbaud Financial Edge accounting systems, coordinated and managed the selection process for new banking and audit services, and recently facilitated the closing of three bond issues. Prior to his time at Ursinus, Mr. Cooper spent nearly ten years at LaSalle University, where he served as Assistant Comptroller and Director of Accounting and Budgets. Before his work in higher education, Mr. Cooper held accounting and financial analyst positions at Abington Memorial Hospital. He earned a Bachelor of Business Administration degree from Temple University and a Master of Business Administration degree from La Salle University.
Lorna Stern was appointed Vice President and Executive Director of The College of Global Studies (“TCGS”) at Arcadia in October 2013. Ms. Stern began her career with Arcadia in 1990, serving in numerous roles in TCGS, involving institutional and advisory board relations, student services, marketing and publications, strategic development, and associate and deputy directorships, with a promotion to Associate Vice President in 2011. During her decades of leadership, Ms. Stern has played an instrumental role in the significant growth of TCGS. Furthering the mission of global understanding, Ms. Stern has served on several national boards in the field and has delivered many presentations throughout the world of international education. She also serves on the board of Overseas Council and as an Advisor to Language Corps, an overseas training program for English as a Second Language (ESL) teachers. Ms. Stern is a member of NAFSA: The Association of International Educators, AIEA and the Forum on Education Abroad. She holds an undergraduate degree in international relations with an emphasis on African affairs from Wells College, and earned her Master of Arts in Law and Diplomacy (MALD) at the Fletcher School of Law and Diplomacy at Tufts University, with a disciplinary focus on international law and the Middle East. Ms. Stern also was a Rotary Scholar at the University of Cape Town, exploring issues of comparative African government and law.
Accreditations and Approving Organizations
The University is accredited by the following entities:
Commission on Higher Education of the Middle States Association of Universities and Schools National Association of Schools of Art and Design Commission on Accreditation in Physical Therapy Education Commonwealth of Pennsylvania and the States of New Jersey and New York (teacher education) Accreditation Review Commission of Education for the Physician Assistant
A-7 Council on Education for Public Health American Board of Genetic Counseling Accreditation Council for Business Schools and Programs Forensic Science Education Programs Accreditation Commission Masters in Psychology Accreditation Council
The University is also approved by the following organizations for related programs:
The New American Colleges and Universities American Art Therapy Association American Chemical Society (chemistry programs) American Psychological Association Council of Applied Masters Programs in Psychology (psychology programs) Global Health Education Consortium National Board for Certified Counselors Physician Assistant Education Association The Association to Advance Collegiate Schools of Business International
The College of Global Studies
Arcadia is internationally recognized for the quality and diversity of study abroad programs available through The College of Global Studies (“TCGS”), one of the first colleges of its kind in the United States dedicated to international education.
With 114 programs in 16 countries, each year TCGS enrolls several thousand students from more than 350 colleges and universities across the nation. Institutions whose students frequently enroll in TCGS's programs include: Northwestern University, Santa Clara University, Denison College, Villanova University, University of Minnesota Twin Cities, Pennsylvania State University, and the University of Colorado, among others. TCGS offers rigorous academic study abroad programs, certificates, research opportunities, internships, service learning, and cohort programs, supported by faculty and staff at home and abroad. In each of the most recent five fiscal years, TCGS has contributed at least $500,000 of net revenue to the University.
Further information on The College of Global Studies can be found in Note “17” to the University’s audited financial statements for the year ended May 31, 2014.
Facilities
The University has 22 buildings and approximately 100 acres, including more than 65 acres which comprise its main campus in Glenside, Pennsylvania. Key University facilities include:
A-8 Grey Towers Castle
Grey Towers Castle is the centerpiece of the campus and a National Historic Landmark. It houses the Office of Enrollment Management, academic and administrative offices, and serves as a residence for approximately 60 students. The Castle was designed by Horace Trumbauer and completed in 1898. In 1929, Arcadia (then Beaver College, located in Jenkintown) purchased Grey Towers from William Welsh Harrison's widow and son. For a number of years, classes were held in Jenkintown and Glenside, but in 1962, the University transferred completely to the Grey Towers property. The Society for Castle Restoration (SCR), a student organization, offers tours and conducts fundraising activities, such as the annual Haunted Castle in October. The Castle has undergone restoration for the past several years. In a process that took two summers, the exterior stonework was re-pointed and repaired with funds from the Commonwealth of Pennsylvania. Recently, the Castle dining room has been restored to its original splendor.
Benton Spruance Fine Arts Center
The Benton Spruance Fine Arts Center houses the Art Gallery, which serves as a recognized regional base of excellence in the visual arts. This building was also designed by Trumbauer, in 1893. The Gallery is funded in part by the Philadelphia Exhibitions Initiative (a program funded by The Pew Charitable Trusts), the National Endowment for the Arts, and the University Art Gallery and private foundations, such as the Arcadia Foundation, the William B. Dietrich Foundation, the Samuel S. Fels Fund and the Montgomery County Foundation.
Marian Angell Boyer Hall of Science
Boyer Hall of Science houses the departments of Biology, Chemistry and Physics, Computer Science and Mathematics, Psychology, and Sociology, Anthropology and Criminal Justice.
Landman Library
Named for former Arcadia President Dr. Bette Landman, the Landman Library furthers the University’s global mission by offering students and faculty increased technology for collaborative education and access to learning partners both on campus and around the globe.
A-9 Blankley Alumni House
Named in 2005 for Arcadia alumnus Rosemary Deniken Blankley '57, this building, formerly known as Blake Hall, was the gatehouse of the Harrison Estate. The stone arch to the right of the building was the original entrance to the estate, and adjacent to the building is the Moon Gate, which was restored several years ago. The exterior stonework of Blankley Hall was restored in 1998, under a grant from the Commonwealth of Pennsylvania. The interior was restored in 2014 to provide space for its current occupants, the Offices of University Advancement and Alumni Relations.
Easton Hall
Easton Hall, next to Brubaker Hall, provides classroom and office space for Arcadia students and faculty. The new residents are Modern Languages, Political Science, International Peace and Conflict Resolution, and Sociology, Anthropology and Criminal Justice. The building also houses a café featuring freshly made sandwiches, salads, and Starbucks coffee. The 18,000-square-foot addition opened in 2008.
The University Commons
The Commons, which opened in January 2012, is a 62,000- square-foot campus center featuring conference rooms; student art galleries; a multipurpose room; The Chat, a snack bar for convenient “grab and go” food and drinks; a game room; workout spaces for health and fitness; an Athletic Hall of Fame; a fireplace lounge; student activity areas for office work and project collaborations; outdoor park and meeting areas, plazas, and cafes; an interactive high-definition video conferencing space; generous open space throughout the building; an outdoor balcony; and additions to the Kuch Center for Athletics and Recreation.
Student Residences
More than two-thirds of undergraduate students live on campus in one of six residence halls and one apartment-style housing complex. First-year students may select from four traditional residence halls (Dilworth, Heinz, Kistler, and Thomas Halls) and the Castle. Upper class students may select from any one of the four traditional residence halls as well as Knight Hall, which has a suite-style configuration, or apartment-style housing in Oak Summit Apartments, which consists of one or two bedroom units and is within walking distance to campus.
A-10 University Enrollment
The following table sets forth student enrollment for the current and past four academic years:
Fall of 2010-11 2011-12 2012-13 2013-14 2014-15
Undergraduate Headcount 2,228 2,211 2,360 2,453 2,594 Graduate Headcount 1,850 1,721 1,668 1,453 1,345 Total Headcount 4,078 3,932 4,028 3,906 3,939
Undergraduate FTE’s 2,071 2,075 2,222 2,324 2,443 Graduate FTE’s 989 942 956 864 786 Total FTE’s 3,060 3,017 3,178 3,188 3,229
Full-Time Undergraduate Applications and Enrollment
The following table sets forth applications, acceptances, acceptance rates, freshmen and transfer enrollments and mean SAT scores of freshmen enrolled full-time for the current and past four academic years and preliminary information for the 2015-16 academic year:
Fall of 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16*
Total Applications Freshman 5,938 7,673 9,044 9,615 9,635 9,541 Transfers 744 767 741 747 733 577 Total 6,682 8,440 9,785 10,362 10,368 10,118
Total Acceptances Freshman 3,844 4,108 5,120 5,739 5,665 5,666 Transfers 398 395 375 359 333 230 Total 4,242 4,503 5,495 6,098 5,998 5,896
Acceptance Rate Freshman 64.7% 53.4% 56.6% 59. 7% 58. 8% 59.4% Transfers 53.5% 51.5% 50.6% 48.1% 45.4% 39.9%
Total Enrolled Freshman 558 510 681 597 673 619 Transfers 146 152 147 116 119 61 Total 704 662 828 713 792 680
Matriculation Rate Freshman 14.5% 12.4% 13.3% 10.4% 11.9% 10.9% Transfers 36.7% 38.5% 39.2% 32.3% 35.7% 26.5%
Enrolled Mean SAT Score 1,117 1,115 1,108 1,104 1,112 1,113 ______* Information provided for the 2015-16 academic year is as of May 6, 2015.
A-11 Undergraduate Retention. The ten-year average Freshman-to-Sophomore retention rate has measured approximately 79%. In 2013 and 2014, this rate was 79% and 85%, respectively.
Full-Time Graduate Applications and Enrollment
The following table shows applications, acceptances, acceptance rates and enrollments of graduate students enrolled full-time for the current and past four academic years and preliminary information for the 2015-16 academic year:
Academic Year 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16* Total Applications 2,086 2,297 2,845 3,011 3,072 3,261
Total Acceptances 522 494 482 418 461 447
Acceptance Rate 25.0% 21.5% 16.9% 13.9% 15.0% 13.7%
Matriculation Rate 41.2% 43.7% 44.8% 50.2% 44.0% 48.3%
Total Enrolled 215 216 216 210 203 216 ______* Information provided for the 2015-16 academic year is as of May 6, 2015.
Geographic Distribution of Incoming Freshman and Transfer Students
Percentage Entering Classes of 2006-07 vs. 2014-15
State 2007 2015 Pennsylvania 53.4% 57.8% New Jersey 23.1% 19.7% New York 7.5% 4.5% Maryland 4.3% 4.3% Delaware 1.5% 1.7% California 0.6% 1.5% Connecticut 1.3% 1.3% Florida 0.1% 1.2% Texas 0.1% 1.0% Massachusetts 2.1% 0.9%
Other U.S. States 4.9% 4.2% Non U.S. 1.1% 1.9%
A-12 Undergraduate Student Fees
The following table shows tuition and fees for the academic years indicated:
2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 Full-Time Tuition $32,140 $33,490 $34,960 $36,150 $37,500 $38,900 Room and Board 11,150 11,640 12,150 12,560 12,740 13,200 Fees 580 660 660 660 660 660
Total Resident $43,870 $45,790 $47,770 $49,370 $50,900 $52,760 Total Commuter $32,720 $34,150 $35,620 $36,810 $38,160 $39,560
Part-Time Tuition per Credit Hour $535 $560 $580 $595 $620 $640
Institutionally Funded Scholarships
The following table illustrates the 5-year trend of institutionally funded scholarships:
2009-10 2010-11 2011-12 2012-13 2013-14 Institutionally Funded Scholarships ($000’s) $29,779 $31,364 $33,383 $36,955 $40,964
Competition
The following table shows tuition and fees for the 2014-15 academic year for the private institutions the University considers its main competitors based on the number of overlapping applications.
Private Institutions Tuition & Fees Drexel University $48,302 Villanova University $45,966 Quinnipiac University $40,670 Saint Joseph’s University $40,580 University of Scranton $39,956 Widener University $39,830 LaSalle University $39,700 Albright College $38,220 Arcadia University $38,160 Rider University $36,120 York College of Pennsylvania $17,360
Source: College and University websites
A-13 Bachelor’s Degrees
Actuarial Science Education Actuarial Science (BS) Early Elementary Education International Studies (BA) International Studies (BA) Art & Design Early Elementary and Special Art (BFA, BA) Education (BA) Liberal Studies Art History (BA) Middle School Education Liberal Studies (BA) Scientific Illustration (BA) (BA) Secondary Education Mathematics Biology (BA, BS) Mathematics (BA, BS) Biology (BA) Secondary Education and Special Education Modern Languages Business, Economics & (BA, BS) French Studies (BA, MAP) Health Administration Italian Studies (BA, MAP) Accounting (BA, BS) English Spanish (BA) Business Administration (BA, English (BA) Spanish Cultural Studies (BA, BS) English with concentration in MAP) Health Administration (BA) creative writing (BA) International Business and Philosophy and Religion Culture (BA) Global Legal Studies Philosophy (BA) Sports Management Global Legal Studies (BA) (BA, BS) Political Science Global Media Political Science (BA) Chemistry Global Media (BA) Chemistry (BA, BS) Psychology Chemistry and Business (BS) Global Security and Psychology (BA) Emergency Management Communications Global Security and Scientific Illustration Communication (BA) Emergency Management Scientific Illustration (BA) (BA) Computer Science Sociology Actuarial Science (BS) Health Administration Sociology (BA) Computer Science (BA, BS) Health Administration (BA) Sport Psychology Computing Technology History Sport Psychology (BA) Computing Technology (BA) History (BA) Mathematics (BA, BS) Sports Management Interdisciplinary Science Sports Management (BA, BS) Criminal Justice Interdisciplinary Science Criminal Justice (BA) (BA) Theater Arts and Acting Acting (BFA) Cultural Anthropology International Business Theater Arts and English Cultural Anthropology (BA) International Business and (BA) Culture (BA)
A-14 Master’s Degrees
Business Administration Humanities Master of Business Administration (MBA) Master of Arts in Humanities (MAH) with a Global Perspective Master of Business Administration (MBA) International Peace and Conflict with a Concentration in Global Business Resolution Diplomacy Master of Arts in International Peace and International MBA Program (Paris, France, Conflict Resolution (MAIPCR) Galati, Romania, Singapore) International Public Relations Counseling Psychology Master of Arts in International Public Master of Arts in Counseling Psychology Relations (MA) (MACP) International Relations and Diplomacy Creative Writing Master of Arts in International Relations and Master of Fine Arts in Creative Writing Diplomacy (MA) (MFA) Physician Assistant English Master of Medical Science (MMS) Master of Arts in English (MA) Public Health Forensic Science Master of Public Health (MPH) Master of Science in Forensic Science (MSFS) Education Master of Education (M.Ed.) Genetic Counseling Master of Arts in Education (M.A.Ed.) Master of Science in Genetic Counseling Doctoral Degrees (MSGC) Physical Therapy Doctor of Physical Therapy (DPT) Health Education Education Master of Arts in Health Education (MAHE) Doctor of Education in Educational Master of Science in Health Education Leadership (Ed.D.) (MSHE)
Faculty/Employees
For the 2014-15 academic year, the University employed 160 full-time faculty, 44% of whom are tenured. The University’s full-time faculty is augmented by a part-time faculty of approximately 315 members.
For the 2014-15 academic year, the University had a total of 361 full-time and 378 part-time employees, (not including employees of TCGS).
A-15 The following is a breakdown of the core University employees by position:
Number Faculty (full-time) 160 Faculty (part-time) 315 Administrative Staff (full-time) 302 Administrative Staff (part-time) 63 Total 840
Student to Faculty Ratio (FTE’s) FY 2010 14 to 1 FY 2011 14 to 1 FY 2012 12 to 1 FY 2013 13 to 1 FY 2014 12 to 1
Total % with Terminal Number Degree Professors 28 100.0% Associate Professors 36 97.0% Assistant Professors 88 95.0% Instructors 8 0.0% Total 160 Adjuncts 315
In addition to the employees referenced above, the University also employs 53 full-time TCGS administrators and support personnel in the United States. The US-based employees are complimented by 65 full and part-time staff members and 90 part-time faculty located overseas.
The University does not directly employ personnel for food service, grounds and maintenance or the bookstore. These services are contracted for with third parties.
A-16 Accounting Matters
In October 2012, the University’s Board of Trustees approved a change in the fiscal year end of the university from June 30 to May 31. The University's financial statements for the 11 months ended May 31, 2013 and the fiscal year ended May 31, 2014 are included as Appendix B to this Official Statement. The University's financial statements are prepared on the accrual basis of accounting in conformity with accounting principles generally accepted in the United States of America. The University reports total assets, liabilities, and net assets in a statement of financial position; reports the change in net assets in a statement of activities; and reports the sources and uses of cash and cash equivalents in a statement of cash flows.
Net assets and revenues, gains, expenses, and losses are classified as unrestricted, temporarily restricted or permanently restricted based on the existence or absence of donor-imposed restrictions as follows:
Permanently restricted net assets are subject to donor-imposed stipulations that they be maintained permanently by the University. Generally, the donors of these assets permit the University to use all or part of the income earned on these assets. Such assets primarily include the University’s permanent endowment funds.
Temporarily restricted net assets are subject to donor-imposed restrictions that can be fulfilled by actions of the University pursuant to those restrictions or that expire by the passage of time. Contributions received with donor imposed restrictions that are met in the same year as received are recorded as temporarily restricted revenue and subsequently released from restriction.
Unrestricted net assets are not subject to donor-imposed restrictions. Unrestricted net assets may be designated for specific purposes by action of the Board of Trustees.
Statement of Operating Activities
The following table summarizes the University’s Statement of Operating Activities for the fiscal years ended June 30, 2010, June 30, 2011 and June 30, 2012, for the 11 months ended May 31, 2013, and for the fiscal year ended May 31, 2014. This information is extracted from the University’s audited financial statements for such periods and should be read in conjunction with the University’s audited financial statements, including the Notes thereto, for the 11 months ended May 31, 2013 and the fiscal year ended May 31, 2104, included in Appendix B to this Official Statement.
A-17 STATEMENT OF OPERATING ACTIVITIES
11 Months Year Ended Year Ended June 30, Ended May 31, May 31, 2010 2011 2012 2013* 2014 Arcadia University Operations Student related revenue Gross student tuition and fees $84,713 $88,176 $90,832 $97,591 $104,338 Less: Financial assistance (29,779) (31,364) (33,383) (36,955) (40,964) Net student tuition and fees 54,934 56,812 57,449 60,636 63,374 Sales and service of auxiliary enterprises 12,537 12,404 12,094 11,873 11,247 67,471 69,216 69,543 72,509 74,621 Government grants 1,357 1,053 997 1,017 783 Private gifts and grants 1,087 998 1,575 1,139 655 Endowment income 1,513 1,081 1,370 1,436 1,645 Investment income 199 233 136 90 48 Other sources 1,261 340 296 240 366 Net assets released from restrictions 3,217 2,755 2,046 1,109 937 Total operating revenues 76,105 75,676 75,963 77,540 79,055
Operating Expenses Instruction 30,275 32,818 33,986 32,332 34,157 Academic Support 6,582 7,824 7,989 7,366 7,581 Student services 10,192 11,152 12,636 13,388 13,466 Institutional support 9,999 11,466 11,637 11,829 13,608 Auxiliary enterprises 10,686 11,651 11,619 11,258 12,568 Research and public service 529 Total operating expenses 67,734 74,911 77,867 76,173 81,909
Change in net assets 8,371 765 (1,904) 1,367 (2,854)
College of Global Studies Gross Operating revenues 37,491 39,641 41,906 43,484 42,396 Less: financial assistance (777) (1,050) (826) (625) (529) Net operating revenues 36,714 38,591 41,080 42,859 41,867 Operating expenses 34,756 36,160 39,893 40,097 41,333 Change in net assets 1,958 2,431 1,187 2,762 534
Change in net assets from operating activities 10,329 3,196 (717) 4,129 (2,320)
Plus: Depreciation and interest expense 7,876 7,998 8,973 9,155 10,703 Unrestricted operating surplus available for debt service 18,205 11,194 8,256 13,284 8,383 ______*In fiscal year 2013 there was a change in fiscal year-end from June 30 to May 31. Therefore audited financial statements are for eleven months and the information presented may not be comparable to other years.
A-18 Certain Operating Metrics
The following table shows the full-time equivalent (“FTE”) enrollment (average of fall and spring semester FTE enrollment) and the net tuition revenue per FTE for the academic years indicated:
2009-10 2010-11 2011-12 2012-13 2013-14
FTE Students 3,070 3,036 2,993 3,123 3,122 Net Tuition and Fees per FTE Student $17,894 $18,713 $19,194 $19,416 $20,299
Management’s Discussion
Operating Performance. The primary components of University revenue consist of net tuition and fees, net auxiliary enterprise revenue and net revenue associated with TCGS. For the year ended May 31, 2014, net tuition and fees increased 4.5% from the prior year and auxiliary revenue decreased by 5.3%. Additionally, TCGS net tuition revenue decreased by 2.3% but still exceeded operating expenses by $500,000.
Balance Sheet Resources. Due to improved equity markets, the University’s investments did well for the year ended May 31, 2014. The market value of the University’s investments at May 31, 2014 was $66.9 million, approximately $9.3 million higher than the previous year. The University’s combined cash and investments were $85.5 million at May 31, 2014, which compare favorably to its cash and investments of $56.6 million four years earlier, at the end of fiscal year 2010.
The College of Global Studies. The nationally prominent TCGS differentiates Arcadia from many of its competitors and acts as a cornerstone for the University’s commitment to preparing students to live in a global society. TCGS is the largest provider of study abroad programs offered by a university (versus a non-university non-profit or for-profit provider). Over the past five years, the net revenue contribution from TCGS to the University’s operating performance has ranged from a low of $500,000 in fiscal year 2014 to a high $2.8 million for the eleven months ended May 31, 2013. The decline in the surplus of revenues over expenses in fiscal year 2014 is attributable to expenditures for infrastructure in its Glenside, Pennsylvania headquarters as well as in overseas offices and programs. TCGS brings academic excellence and a uniquely diversified revenue stream to the University. During the year ended May 31, 2014, students from more than 350 colleges and universities chose TCGS programs to study or complete internships abroad.
Current Budget and Historical Results of Operations. The operating budget expenditures are provided by a variety of sources. In fiscal year 2015, the University expects to derive its operating revenues from tuition and fees (77%), auxiliary enterprises (17%); gifts, grants, and contracts (2%); distribution from the endowment (3%); and other sources (1%). A table summarizing the fiscal year 2015 budget and forecasted operating results as of February 28, 2015 appears below
A-19 Fiscal Year 2015 Operating Budget and Forecast (in thousands)
Budget Forecast Revenues Tuition and fees $ 110,520 $ 110,400 Auxiliary enterprises 14,368 14,477 Student aid (45,100) (46,880) Net student revenues $ 79,788 $ 77,997 Private gifts and grants 650 650 Government grants 600 820 Endowment income 2,100 2,305 Investment income 50 130 Other sources 360 530 Total operating revenues $ 83,548 $ 82,432
Expenses Salaries $ 39,042 $ 37,300 Employee Benefits 11,430 10,434 Non-Personnel 27,119 26,604 Depreciation 3,900 3,851 Interest 4,606 4,406 Total operating expenses $ 85,897 $ 82,995 Increase/(decrease) in net assets from university operations $ (2,349) (163)
Increase/(decrease) in net assets from operations of The College of Global Studies $ 500 $ 500
Total increase (decrease) in net assets from operating activities $ (1,849) $ 337
Plus : Depreciation and interest expense $ 8,306 $ 8,257
Operating income available for debt service $ 6,457 $ 8,594
Investments and Net Assets
The University’s endowment fund, including funds held in trust by others, has grown over the past three years from just under $55.5 million at June 30, 2011 to $68.9 million at May 31, 2014. This growth has been stimulated by improved equity markets, a five percent (5%) spending policy and Trustee designation of all unrestricted estate gifts to the endowment. The endowment fund balance at March 31, 2015 (unaudited) was $68.2. More than two-thirds of the University’s endowment funds are Trustee designated (unrestricted) funds.
A-20 The University’s endowment fund asset allocation policy directs approximately 25% to fixed income securities, 65% to common stocks, 3% to Real Return Strategy Funds and 7% to non- traditional investments (e.g., private equity, venture capital, and real estate.) At May 31, 2014, 23.5% were in fixed income investments, 64.6% were invested in equities, 5.2% were in Real Return Strategy Funds and 6.7% were in alternative investments.
Additional information with respect to the investment and performance of the University’s endowment fund, can be found in Note “10” (Endowments) and Note “14” (Fair Value Measurements) in the University’s audited financial Statements for the year ended May 31, 2014 included in Appendix B of this Official Statement.
Gifts, Contributions and Grants
Total gifts, grants and bequests to the University reflected on a cash basis for the previous five years and their origin are as follows:
Year Ended June 30, 11 Months Year Ended Ended May 31, May 31, 2010 2011 2012 2013* 2014
Alumni $ 1,975,173 $ 813,015 $ 891,118 $1,132,288 $ 2,244,177 Trustees 120,211 93,105 86,656 76,326 105,047 Parents 13,317 15,245 13,265 39,025 10,123 Friends 325,338 326,282 237,178 167,722 446,507 Foundations 564,030 361,625 480,413 422,035 517,201 Corporations 51,766 145,732 96,421 114,378 54,235 Matching 49,727 45,432 39,437 28,853 37,710 Other 156,725 3,059,813 1,334,569 20,573 112,190
Total $3,256,287 $4,860,249 $3,179,057 $2,001,200 $3,527,190
Total Unrestricted $671,634 $814,677 $888,284 $807,767 $633,232
______ In fiscal year 2013 there was a change in fiscal year-end from June 30 to May 31. Therefore the information presented is for eleven months and may not be comparable to other years.
A-21 Retirement Plans
All full-time employees of the University are eligible to participate in the University’s defined contribution retirement plan. Covered employees may choose either Teachers Insurance and Annuity Association or the Vanguard Group as their plan trustee. The plan is contributory. The University’s matching contribution is equal to 100% of the first 6% of compensation deferred by eligible participants. Participant deferrals of 6.5% of compensation and above receive a University matching contribution of 8% of compensation. The plan is fully funded and the participants’ interests are fully vested. The University recorded an expense of $1,897,000 for the year ended May 31, 2014. The University also provides postretirement medical benefits to all employees meeting specified eligibility requirements. Under this plan, the University paid benefits of approximately $289,000 for the year ended May 31, 2014 and had an aggregate accrued liability for postretirement benefits of 8,149,000 at May 31, 2014. For additional information regarding the University’s retirement plan and postretirement medical benefits, please see Notes “12” (Retirement Plan) and “13” (Post-Retirement Medical Benefits) of the University’s audited financial statements for the year ended May 31, 2014 included in Appendix B to this Official Statement.
Litigation
From time to time, the University is subject to various lawsuits and other claims arising in the ordinary course of business. The University is not aware of any litigation pending or threatened to which the University is a party wherein any unfavorable decision would materially adversely affect the ability of the University to continue in its normal course of business.
A-22
APPENDIX B
AUDITED FINANCIAL STATEMENTS OF ARCADIA UNIVERSITY FOR THE FISCAL YEAR ENDED MAY 31, 2014 AND FOR THE ELEVEN MONTHS ENDED MAY 31, 2013
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Arcadia University
Financial Statements
May 31, 2014
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Arcadia University Table of Contents May 31, 2014
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Independent Auditors’ Report 1
Financial Statements
Statement of Financial Position 3
Statement of Activities 4
Statement of Cash Flows 5
Notes to Financial Statements 6
Independent Auditors’ Report
Board of Trustees Arcadia University
We have audited the accompanying financial statements of Arcadia University (the “University”), which comprise the statement of financial position as of May 31, 2014, and the related statements of activities and cash flows for the year then ended, and the related notes to the financial statements.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
1
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Arcadia University as of May 31, 2014, and the results of its operations and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.
Philadelphia, Pennsylvania October 13, 2014
2 Arcadia University Statement of Financial Position May 31, 2014 (In Thousands)
Assets
Cash and cash equivalents $ 18,563 Restricted cash 132 Investments 66,913 Student accounts receivable, net 3,649 Contributions receivable, net 1,453 Student loans receivable, net 5,610 Inventories, prepaid expenses and other assets 8,412 Land, buildings and equipment, net 120,155 Deposits with bond trustees 21,586 Trust funds held by others 2,778
Total assets $ 249,251
Liabilities and Net Assets
Liabilities Accounts payable $ 2,425 Accrued expenses 7,078 Deferred revenue and deposits 12,161 Line of credit - Current maturities of long-term debt 1,705 Capital lease obligation 60 Annuities payable 294 Accrued postretirement benefits 8,149 Asset retirement obligation 2,526 Refundable loan funds 773 Long-term debt 89,830
Total liabilities $ 125,001
Net Assets Unrestricted 95,410 Temporarily restricted 10,067 Permanently restricted 18,773
Total net assets 124,250
Total liabilities and net assets $ 249,251
See notes to financial statements 3 Arcadia University Statement of Activities For the Year Ended May 31, 2014 (In Thousands)
Temporarily Permanently Unrestricted Restricted Restricted Total
Operating Activities Arcadia University Operations
Operating Revenues Student tuition and fees, net of financial assistance provided of $40,964 $ 63,374 $ - $ - $ 63,374 Sales and service of auxiliary enterprises, net of financial assistance provided of $2,731 11,247 - - 11,247 Government grants 783 263 - 1,046 Private gifts and grants 655 774 - 1,429 Endowment income 1,645 545 - 2,190 Investment income 48 - - 48 Other sources 366 - - 366 Net assets released from restrictions 937 (937) - -
Total operating revenues 79,055 645 - 79,700
Operating Expenses Instruction 34,157 - - 34,157 Academic support 7,581 - - 7,581 Student services 13,466 - - 13,466 Institutional support 13,608 - - 13,608 Auxiliary enterprises 12,568 - - 12,568 Research and public service 529 - - 529
Total operating expenses 81,909 - - 81,909
Change in net assets from operations - Arcadia University (2,854) 645 - (2,209)
College of Global Studies Student tuition and fees, net of financial assistance provided of $529 41,148 - - 41,148 Endowment income 498 - - 498 Investment income 56 - - 56 Other sources 165 - - 165
Total revenues 41,867 - - 41,867
Operating expenses 41,333 - - 41,333
Change in net assets from operations - College of Global Studies 534 - - 534
Change in net assets from operating activities (2,320) 645 - (1,675)
Non-Operating Activities Endowment and other gifts - - 1,539 1,539 Change in fair value of future foreign exchange contracts 2,062 - - 2,062 Change in fair value of investments 6,361 439 499 7,299 Gain on sale of Alliance 668 - - 668 Change in benefit obligation 1,530 - - 1,530
Change in net assets from non-operating activities 10,621 439 2,038 13,098
Total change in net assets 8,301 1,084 2,038 11,423
Net Assets, Beginning of Period 87,109 8,983 16,735 112,827
Net Assets, End of Period $ 95,410 $ 10,067 $ 18,773 $ 124,250
See notes to financial statements 4 Arcadia University Statement of Cash Flows For the Year Ended May 31, 2014 (In Thousands)
Cash Flows from Operating Activities Change in net assets $ 11,423 Adjustments to reconcile change in net assets to net cash provided by operating activities: Depreciation and amortization 6,822 Provision for loss on accounts receivable 455 Contributions restricted for long-term investments (1,539) Contributions restricted for long-lived assets (102) Permanently restricted gain on investments (499) Change in fair value of investments and foreign exchange contracts (8,862) Loss on investment in joint venture 668 Change in asset retirement obligation 147 (Increase) decrease in: Restricted cash 1,541 Student accounts receivable (1,067) Contributions receivable 10 Student loans receivable (194) Inventories, prepaid expenses and other assets (1,902) Increase (decrease) in: Accounts payable and accrued expenses 361 Deferred revenue and student deposits 1,241 Accrued postretirement benefits (1,172) Annuities payable 46
Net cash provided by operating activities 7,377
Cash Flows from Investing Activities Purchase of land, buildings and equipment (7,207) Proceeds from sale of investments 2,177 Purchase of investments (1,570) Use of deposits with bond trustees 12,015 Additions to deposits with bond trustees (22,044)
Net cash used in investing activities (16,629)
Cash Flows from Financing Activities Proceeds from Issuing debt 20,000 Principal payments on long-term debt (6,305) Payment on line of credit (1,500) Payments on capital lease obligation (29) Contributions restricted for long-lived assets 102 Contributions restricted for endowment 1,539
Net cash provided by financing activities 13,807
Net increase in cash and cash equivalents 4,555
Cash and Cash Equivalents, Beginning 14,008
Cash and Cash Equivalents, Ending $ 18,563
Supplemental Disclosure of Noncash Financing Activities Interest paid $ 4,256
Land, buildings and equipment in accounts payable$ 304
See notes to financial statements 5 Arcadia University Notes to Financial Statements May 31, 2014
1. Organization
Arcadia University (the “University”), founded in 1853, offers a wide array of liberal arts and professional programs. The University offers high quality, undergraduate degree programs in more than 30 fields of study, as well as graduate degrees and certificates of advanced study. The University also offers one of the largest campus-based study abroad programs in the country. Through the College of Global Studies, students may participate in any of more than 100 programs in 15 foreign countries.
The University changed its fiscal year end from June 30 to May 31 beginning the period ending May 31, 2013. The financial statement for the current fiscal year is for the year ended May 31, 2014.
2. Summary of Significant Accounting Policies
Basis of Presentation
The University’s financial statements have been prepared on the accrual basis of accounting in conformity with accounting principles generally accepted in the United States of America. The University reports total assets, liabilities and net assets in a statement of financial position; reports the change in net assets in a statement of activities; and reports the sources and uses of cash and cash equivalents in a statement of cash flows.
Net assets and revenues, gains, expenses and losses are classified as unrestricted, temporarily restricted or permanently restricted based on the existence or absence of donor- imposed restrictions as follows:
Permanently restricted - Net assets subject to donor-imposed stipulations that are maintained permanently by the University. Generally, the donors of these assets permit the University to use all or part of the income earned on these assets. Such assets primarily include the University’s permanent endowment funds.
Temporarily restricted - Net assets whose use by the University is subject to donor- imposed stipulations that can be fulfilled by actions of the University pursuant to those stipulations or that expire by the passage of time. Contributions received with donor imposed restrictions that are met in the same year as received are recorded as temporarily restricted revenue and subsequently released from restriction.
Unrestricted - Net assets that are not subject to donor-imposed stipulations. Unrestricted net assets may be designated for specific purposes by action of the Board of Trustees.
Cash and Cash Equivalents
The University treats all highly liquid investments with an average maturity of 90 days or less at the time of purchase as cash equivalents. These investments include cash, foreign currencies, certificates of deposit and money market funds. As of May 31, 2014, the University held approximately $4,688,000 in foreign currencies.
6 Arcadia University Notes to Financial Statements May 31, 2014
Restricted Cash
Restricted cash includes funds legally restricted for certain construction projects and funds held on tenant deposits.
Concentration of Credit Risk
Financial instruments of the University that expose it to concentration of credit risk consist primarily of cash and cash equivalents, trust funds held by others and investments. These funds are held in various high quality financial instruments managed by University personnel or outside advisors. The University believes that concentration of credit risk is limited with respect to its cash and cash equivalents, investments and trust funds held by others.
Other financial instruments that potentially subject the University to concentrations of credit risk are receivables. Receivables result primarily from tuition and fees, student loans and contributions. Concentrations of credit risk with respect to contributions receivable are limited due to the composition of the University's contributor base.
Investments
The University accounts for its investments in marketable securities at their fair value. Adjustments to reflect increases or decreases in market value, referred to as change in market value of investments, are reported in the statement of activities.
Realized gains and losses arising from the sale of investments and ordinary income from investments are reported as changes in unrestricted net assets unless their use is temporarily or permanently restricted by explicit donor imposed stipulations.
Equity and fixed income mutual funds are valued at quoted market prices. The University also invests in a variety of alternative investments. Alternative investments include hedge funds, limited partnership funds, private equity and other funds. In the absence of readily determinable fair value, fair value is determined based on a review of audited financial statements of the underlying funds, when available, and other information provided by fund managers, and research performed by the University’s management. Investments in such funds do carry certain risks including lack of regulatory oversight, interest rate risk and market risk. Due to the level of risk associated with these investments and the level of uncertainty related to changes in the fair value of investment securities, it is at least reasonably possible that changes in risk factors in the near term would materially affect the amounts reported in the statement of financial position.
At May 31, 2014, the University had remaining capital commitments on alternative investments of $748,000.
7 Arcadia University Notes to Financial Statements May 31, 2014
Receivables
Student accounts receivable include all current accounts receivable related to student transactions net of allowances of $6,386,000 as of May 31, 2014. The allowance for doubtful accounts is provided based upon management’s judgment including such factors as prior collection history and type of receivable. The University writes-off receivables when they become uncollectible, and payments subsequently received on such receivables are credited to the allowance for doubtful accounts. All accounts over one year old have been written off or fully reserved.
Contributions receivable include all unconditional promises to give less management’s estimate of an allowance to reflect their net realizable value.
The student loans receivable represents loans to students funded by advances to the University by the federal government under the Federal Perkins Loan Program (the “Program”). Currently, eligible students receive loan funds under this program at a fixed rate of five percent. Funding for the program comes from prior program loans already in repayment, federally contributed funds and institutionally contributed funds. The University acts as custodian of all Perkins federal student program loan funds and loans receivable. In the event that the University ceases to participate in the Program, the amounts are refundable to the federal government. Such funds may be re-loaned by the University after collection, but in the event that the University no longer participates in the Program, the amounts are refundable to the federal government. The federal government’s portion of these funds at May 31, 2014 was $773,000. As of May 31, 2014, $733,000 was carried as student loans receivable related to the Program.
The prescribed practices for the Program do not provide for accrual of interest on student loans receivable. Accordingly, interest on loans is recorded as received and is reinvested to support additional loans; uncollectible loans are not recognized until the loans are canceled or written-off in conformity with the Program’s requirements. The impact of recording interest income on a cash basis is not considered significant. In addition, the credit quality of the student is not evaluated after the initial approval and calculation of the loans. Delinquent loans and the allowance for losses on loans receivable are reviewed by management, but are not material to the overall financial statements.
The University participates in the Federal Direct Loan Program. Funds owed to Arcadia from the government as a result of the Direct Loan program were $4,877,000 at May 31, 2014.
Revenue Recognition
Tuition revenue is recorded at established rates net of financial assistance provided directly by the University. The University recognizes tuition revenue in the academic period that it is earned. Any payments received in advance for the subsequent year are classified as deferred revenue in the statement of financial position.
8 Arcadia University Notes to Financial Statements May 31, 2014
The University records unconditional promises to give as receivables. The University reports gifts of cash and other assets as restricted support if they are received with donor stipulations that limit the use of the donated assets. When a donor restriction expires, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statement of activities as net assets released from restrictions.
The University reports gifts of land, buildings and equipment as unrestricted support unless explicit donor stipulations specify how the donated assets must be used. Gifts of long-lived assets with explicit restrictions that specify how the assets are to be used and gifts of cash or other assets that must be used to acquire long-lived assets are reported as restricted support. Absent explicit donor stipulations about how long those long-lived assets must be maintained, the University reports expirations of donor restrictions when the donated or acquired long-lived assets are placed in service.
Charitable Gift Annuities
The University has entered into charitable gift annuity agreements. Revenue is recognized pursuant to the annuity agreements based on the fair value of the assets contributed less a liability for the present value of the payments expected to be made to the beneficiaries.
The fair value of assets for the charitable gift annuities was $710,000 at May 31, 2014 and is included in investments in the statement of financial position. The liability associated with the annuities was $294,000 at May 31, 2014.
Inventories
Inventories are valued at cost using the average cost method. The University’s inventories consist of office and physical plant supplies.
Deposits with Bond Trustees
Deposits with bond trustees consist primarily of cash and cash equivalents, U.S. government securities and other fixed income funds which are held by a trustee in fulfillment of debt related indentures. These funds are restricted to future debt service or projects as defined by the debt indenture.
Land, Buildings and Equipment
Land, buildings and equipment are stated at cost less accumulated depreciation. Expenditures for new construction, major renewals and replacements and equipment costing over $5,000 are capitalized. Land, buildings and equipment are depreciated over their estimated useful lives using the straight-line method (15 years for land improvements; 15-50 years for buildings and improvements; 3-7 years for furniture and equipment and 10 years for library holdings). Upon retirement or disposition of the land, buildings and equipment, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in the statement of activities.
9 Arcadia University Notes to Financial Statements May 31, 2014
Derivative Financial Instruments
The functional currency for the majority of the University’s international programs is the applicable local currency. The University sets prices for its international programs in U.S. dollars 9 to 18 months prior to the program start date. The University is therefore subject to a significant amount of foreign exchange risk. In order to offset this exchange risk, it is the University’s practice to purchase forward foreign exchange contracts with major banks. No cash is exchanged at the time a foreign exchange contract commitment is made; however, the contract implies an irrevocable promise by the University to purchase a specified amount of foreign currency at a specific price.
The University has determined that its use of forward foreign exchange contracts qualifies as a future-hedging instrument, and as such, is measured at fair value and recognized as either an asset or liability on the statement of financial position and that changes in the fair value of derivative instruments are recognized as changes in fair value on the statement of activities. The University recorded a cumulative gain adjustment of $2,062,000 to record the fair value of outstanding forward foreign exchange contracts at May 31, 2014.
At May 31, 2014, the University held $29,119,000 in forward foreign exchange contracts with fair values of $30,018,000. At May 31, 2014, the accumulated changes in fair value of the future foreign exchange contracts of $899,000 are included within investments on the statement of financial position. The change in fair value is recorded as a non-operating gain or loss in the statement of activities.
Fund Raising Expenses
For the year ended May 31, 2014, direct expenses for fund raising were $1,535,196.
Non-Operating Activities
The University considers endowment gifts, net unrealized and realized gains and losses on sale of investments, endowment income in excess or deficiency of its 5% spending policy, changes in the fair value of forward foreign exchange contracts, changes in the postretirement medical benefits obligation and unusual and other, non-recurring transactions to be non-operating activities.
Foreign Currency Translation
The translation from the applicable foreign currencies to U.S. dollars is performed for statement of financial position accounts using current exchange rates in effect at the statement of financial position date and for revenue and expense accounts using a weighted average exchange rate for the year ended May 31, 2014.
Allocation of Certain Expenses
The statement of activities presents expenses by functional classification. Operation and maintenance of physical plant and related interest, depreciation, and accretion are allocated based on square footage.
10 Arcadia University Notes to Financial Statements May 31, 2014
Income Taxes
The University is exempt from federal income taxes under Section 501(c)(3) of the Internal Revenue Code. Accordingly, no provision for income taxes is made in the financial statements.
The University follows the Financial Accounting Standards Board (“FASB”) guidance that requires a tax position to be recognized or derecognized based on a “more likely than not” threshold. This applies to positions taken or expected to be taken in a tax return. The University does not believe its financial statements include any uncertain tax positions.
The University’s policy is to recognize interest related to unrecognized tax benefits in interest expense and penalties in operating expenses. No interest or penalties were recognized in 2014.
The University’s federal Exempt Organization Business Income Tax Returns for 2014, 2013, and 2012 remain subject to examination by the Internal Revenue Service.
Use of Estimates
The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Subsequent Events
The University evaluated subsequent events for recognition or disclosure through October 13, 2014, the date the financial statements were issued.
New Accounting Standard
The FASB issued Accounting Standards Update (“ASU”) No. 2011-04, Fair Value Measurements and Disclosures (Topic 820): Amendments to Achieve Common Fair Value Measurements and Disclosure Requirements in U.S. GAAP and IFRSs. ASU 2011-04 includes new and clarified guidance on fair value measurements and required additional disclosures. The adoption of the amended guidance required certain additional disclosures regarding fair value measurements in the notes to the financial statements on a prospective basis.
11 Arcadia University Notes to Financial Statements May 31, 2014
In October 2012, the FASB issued ASU 2012-05, Statement of Cash Flows (Topic 230): Not-for-Profit Entities: Classification of the Sale of Proceeds of Donated Financial Assets in the Statement of Cash Flows. This amendment addresses the diversity in practice with regard to the presentation of cash receipts from the sale of donated assets in the statement of cash flows. Under this update, a non-for-profit entity will be required to classify cash receipts from the sale of donated financial assets as cash inflows from operating activities, unless the donor restricted the use of the contributed resources to long-term purposes. This update is effective for the University’s fiscal year beginning June 1, 2014. The guidance is prospective and management does not believe the adoption of this ASU will have a significant impact on the University’s financial statements.
In April 2013, the FASB issued ASU 2013-06, Not-for Profit Entities (Topic 958): Services Received from Personnel of an Affiliate. This amendment will require a recipient non-for- profit entity to recognize all services received from personnel of an affiliate that directly benefits the recipient not-for-profit entity. Such services will be required to be measured at the cost recognized by the affiliate for the personnel providing those services. However, if this measurement will significantly overstate or understate the value of the service received, the recipient not-for-profit entity may elect to recognize that services received at either the cost recognized by the affiliate for the personnel providing that service or the fair value of that service. This update is effective for the University’s fiscal year beginning June 1, 2015. The guidance is prospective and management does not believe the adoption of this ASU will have a significant impact on the University’s financial position or results of operations.
3. Investments
The University’s investments were as follows:
May 31, 2014 (In Thousands)
Mutual funds: Equity funds $ 36,816 Fixed income funds 14,047
Total mutual funds 50,863
Other investments 3,089 Alternative investments 12,062 Forward foreign exchange contracts 899
Total $ 66,913
Investment management and custodial fees are netted against investment returns and were approximately $303,000 for the year ended May 31, 2014.
12 Arcadia University Notes to Financial Statements May 31, 2014
4. Contributions Receivable
Contributions receivable include all unconditional promises to give and are measured at fair value on a non-recurring basis. Contributions that are expected to be collected within one year are recorded at net realizable value. Contributions that are expected to be collected in future years are recorded at the present value of their estimated future cash flows with a discount rate adjusted for market conditions to arrive at fair value. Amortization of the discounts is included in contribution revenue. Conditional promises to give are not included as support until the conditions are substantially met.
Included in contributions receivable are the following unconditional promises at:
May 31, 2014 (In Thousands)
Unconditional promises expected within 1 year $ 1,181 Unconditional promises expected between 1-5 years 558
Total 1,739
Less: Discount 26 Allowance for uncollectibles 260
Total 286
Unconditional promises to give net of unamortized discount and allowance for uncollectible amounts $ 1,453
13 Arcadia University Notes to Financial Statements May 31, 2014
5. Land, Buildings and Equipment
Land, buildings and equipment consisted of the following:
May 31, 2014 (In Thousands)
Land and land improvements $ 16,108 Buildings and improvements 141,659 Furniture and equipment 37,449 Library holdings 3,649 Construction in progress 5,159
Total 204,024
Less accumulated depreciation 83,869
Total $ 120,155
The University incurred depreciation expense of $6,701,000 during the year ended May 31, 2014.
6. Asset Retirement Obligation The University recognizes the cost associated with the eventual remediation and abatement of asbestos and other regulated substances located within the construction of the University’s land, buildings and equipment. The cost of the abatement was estimated utilizing an externally conducted survey for asbestos identification and contractor estimates for remediation integrated with management’s future remediation plans. The University recorded an asset retirement obligation liability of $2,526,000 at May 31, 2014. Included in the balance for accretion of interest related to conditional asset retirement obligations recognized is $147,000 for the year ended May 31, 2014. There were $24,000 in actual remediation and abatement costs for the year ended May 31, 2014.
14 Arcadia University Notes to Financial Statements May 31, 2014
7. Long-Term Debt
Long-term debt at May 31, 2014 consisted of the following:
Interest Rate Principal Percent Term Balance (In Thousands)
University revenue bonds: Fixed rate issues, Montgomery County Higher Education and Health Authority: Series 2006 4.00-5.00 2006-2036 $ 37,585 Series 2006 (2nd Series) 4.00-5.00 2006-2027 11,320 Series 2010 4.80-5.60 2010-2040 23,000 Series 2013 2.00-5.75 2013-2040 19,630
Variable rate issue, Pennsylvania Higher Education Facilities Authority Series of 2001 Variable 2003-2021 -
Total debt 91,535
Current maturities of long-term debt 1,705
Total long-term debt $ 89,830
In December 2013, the University issued $20,000,000 of Montgomery County Higher Education and Health Authority Revenue Bonds, Series of 2013 (2013 Bonds). The 2013 Bonds were issued to finance the costs of various capital projects of the University, to refund the Pennsylvania Higher Educational Facilities Authority’s Revenue Bonds Series 2001, and to pay certain costs of issuance.
New capital projects eligible for funding under the 2013 Bonds include the following: (a) the construction and equipping of a new University Health Science Facility, an approximately 10,000 square foot addition to the University’s Science Facilities, construction of an approximately 15,000 square foot building for the arts, construction of an approximately 3,000 square foot maintenance building, construction of fire roads, bike paths, bridges and walk ways, sidewalks and curbing, construction of a NCAA compliant baseball facility and other athletic field improvements, construction, improvement, equipping, renovation and furnishing of various University facilities and property, including, but not limited to Boyer Hall Labs, Murphy Hall, Larsen Hall, Kaname House and other buildings, various other University student housing facilities, classroom facilities, laboratory facilities, library facilities, athletic facilities, student service facilities, administrative services facilities and other capital projects to benefit the University.
15 Arcadia University Notes to Financial Statements May 31, 2014
In May 2010, the University issued $23,000,000 of Montgomery County Higher Education and Health Authority Revenue Bonds, Series of 2010 (2010 Bonds). The 2010 Bonds were issued to finance the costs of various capital projects of the University, to fund a deposit to a debt service reserve fund for the Series 2010 Bonds, and to pay certain costs of issuance.
New capital projects eligible for funding under the 2010 Bonds include the following: (a) the construction and equipping of a new University student center, an approximately 48,000 square foot building to be located adjacent to the existing Kuch Athletic Center, providing spaces for dining, student clubs and activities, meetings and conferences, art exhibits, fitness activities and storage; (b) renovations and improvements to approximately 15,000 square feet of the Kuch Athletic Center to accommodate integration with the new University student center; and (c) other miscellaneous campus improvements, including renovations to the new athletic field along Easton Road, additional parking and parking improvements, classroom and science laboratory renovations, general campus landscaping improvements, and other miscellaneous capital additions, renovations, and improvements, including purchases of capital equipment.
In February 2006, the University issued $45,665,000 of Montgomery County Higher Education and Health Authority Revenue Bonds, Series of 2006 (2006 Bonds). The 2006 Bonds were issued to advance refund the outstanding Montgomery County Higher Education and Health Authority Revenue Bonds, Series of 1996 (1996 Bonds) and to provide approximately $28 million for new capital projects and to pay for costs related to issuance. The 2006 Bonds maturing on or after April 1, 2017 are subject to optional redemption by the Authority, as directed by the University, in whole or part any time after April 1, 2016 at a redemption price of 100% of the principal amount.
In April 2006, the University issued $11,695,000 of Montgomery County Higher Education and Health Authority Revenue Bonds, Second Series of 2006 (2006 Second Series Bonds). The 2006 Second Series Bonds were issued to advance refund the outstanding Montgomery County Higher Education and Health Authority Revenue Bonds, Series of 1999 (1999 Bonds). The 2006 Second Series Bonds maturing on April 1, 2027 are subject to optional redemption by the Authority, as directed by the University, in whole or part any time after April 1, 2016 at a redemption price of 100% of the principal amount.
In June 2001, the University issued $8,000,000 of Pennsylvania Higher Educational Facilities Authority Revenue Bonds, Series of 2001 (2001 Bonds). This bond issue was part of a financing program of the Association of Independent Colleges and Universities of Pennsylvania (”AICUP”), of which the University is a member. The 2001 Bonds were fully refunded as noted in the 2013 Bond.
Each of the Montogomery County Higher Education and Health Authority revenue bonds provide for the University to pledge its tuition revenues as collateral for the bonds.
16 Arcadia University Notes to Financial Statements May 31, 2014
The terms of the bond indentures contain, among other provisions, requirements for maintaining certain financial ratios, including liquidity and debt service coverage. Aggregate principal payments on bonds payable for each of the next five fiscal years subsequent to May 31, 2014 are as follows (in thousands):
Years ending May 31: 2015 $ 1,705 2016 1,785 2017 1,865 2018 1,935 Thereafter 84,245
Total $ 91,535
The University incurred interest expense of $4,326,000 for the year ended May 31, 2014.
8. Line of Credit
In May 2013, the University obtained an unsecured $5,000,000 line of credit with a financial institution at a rate equal to the higher of three percent or LIBOR rate plus two hundred basis points (3% at May 31, 2014). The University borrowed $2,000,000 against the line of credit and fully repaid the outstanding balance during the year ended May 31, 2014. As of May 31, 2014, the line of credit had expired.
In July, 2014, the line of credit was subsequently renewed in the amount of $5,000,000 at a rate equal to the higher of three percent or LIBOR plus two hundred basis points.
9. Temporarily and Permanently Restricted Net Assets
Temporarily restricted net assets of $10,067,000, as of May 31, 2014 were available for the purposes of instruction, scholarships, capital expenditures and accumulated amounts under the investment spending policy.
Permanently restricted net assets of $18,773,000 as of May 31, 2014 consisted of the principal of endowment gifts and the realized and unrealized gains and losses associated with endowment gifts that were permanently restricted to the endowment by the donor. Income from permanently restricted net assets is restricted to instruction, scholarships or activities that support the mission of the University.
10. Endowments
As required by accounting principles generally accepted in the United States of America, net assets associated with endowment funds, including funds designated by the Board of Trustees to function as endowments, are classified and reported based on the existence or absence of donor-imposed restrictions.
The University’s endowment consists of a portfolio of active and passive managed funds established to provide both a source of operating funds as well as long-term financial stability.
17 Arcadia University Notes to Financial Statements May 31, 2014
The endowment includes both donor-restricted endowment funds and funds designated by the Board of Trustees.
The University’s policy requires the preservation of the fair value of the original gift as of the gift date of the donor-restricted endowment funds absent explicit donor stipulations to the contrary. As a result, the University classifies as permanently restricted net assets (a) the original value of gifts donated to the permanent endowment, (b) the original value of subsequent gifts to the permanent endowment, and (c) accumulations to the permanent endowment made in accordance with the direction of the applicable donor gift instrument at the time the accumulation is added to the fund. This is regarded as the “historic dollar value” of the endowed fund. The remaining portion of the donor-restricted endowment fund that is not classified in permanently restricted net assets and is regarded as “net appreciation” is classified as temporarily restricted net assets until those amounts are appropriated for expenditure by the University in a manner consistent with the University’s spending policy.
Funds with Deficiencies
From time to time, the fair value of assets associated with individual donor restricted endowment funds may fall below the “historic dollar value”. Deficiencies of this nature are reported by a charge to unrestricted net assets and a corresponding increase to temporarily restricted net assets. There were no funds with deficiencies as of May 31, 2014.
Endowment Investment Policy
The University has adopted an investment policy that is intended to provide a predictable stream of funding to programs from its endowment while seeking to maintain the purchasing power of the endowment assets. The University’s Endowment Fund (the Fund) consists of cash, securities, and other investments. The use of the assets of the Fund may be permanently restricted, temporarily restricted, or unrestricted. The Fund may receive donor- restricted gifts and bequests to provide a permanent endowment, which is to provide a permanent source of income, or a term endowment, which is to provide income for a specified period. The principal of a permanent endowment must be maintained permanently and is classified as permanently restricted net assets. The principal of a term endowment must be maintained for a specified term and is classified as temporarily restricted net assets. The University’s Board of Trustees may earmark a portion of its unrestricted net assets as board-designated endowment to be invested to provide income for a long but unspecified period. The principal of a board-designated endowment, which results from an internal designation, is not donor restricted and is classified as unrestricted net assets.
The Board of Trustees has stipulated that all bequests to the University, not otherwise designated, will be added to the Fund.
18 Arcadia University Notes to Financial Statements May 31, 2014
Endowment Spending Policy
The University has adopted a spending policy seeking a total percentage return from assets. As defined under section 5548 (c) of the Pennsylvania Non-Profit Corporation law, the University will recognize as endowment income a seven percent return on assets based upon the three-year average market value of the Fund as of the close of the current fiscal year.
On an annual basis, the University will set a spending policy for budgeting purposes. The spending rate will be a percentage of assets based upon the three-year average fair value of the fund as of the close of the calendar year preceding its fiscal year. The spending rate should not exceed the recognized endowment income (7%). All returns, regardless of source, above the spending rate will be retained to enhance growth of the fund. For the year ended May 31, 2014, the University recognized a five percent spending rate for budgeting purposes.
Strategies Employed for Achieving Objectives
To satisfy its goal of supporting the mission of the University through growth and by providing a predictable level of endowment income to the annual operating budget, rate-of- return objectives are to earn an average annual total real rate of return of at least five to six percent, as measured over a three-year to five-year market period, and to outperform selected weighted market indices. Funds are invested through active and passive fund managers with equity investments, fixed investments, which are predominately index funds, and alternative investments. Equity investments include common stocks, which are diversified in terms of industry, capital size, and nation of origin. Non-traditional investments include private equity, venture capital, and real estate. Fixed investments include cash, cash equivalents, and bonds. Cash and cash equivalents are maintained at a minimum to provide the Fund requisite liquidity. Target allocations for investments are 25% fixed income, 65% equity, and 10% non-traditional. Periodic re-balancing is to occur to maintain the target ranges. Investment returns are measured quarterly. Stock returns are compared against the Standard & Poor’s 500 Index and other standard equity indices. Bonds are evaluated using Barclay’s Capital Aggregate Bond Index and other standard fixed income indices. The total portfolio is compared to the consumer price index plus 5%.
19 Arcadia University Notes to Financial Statements May 31, 2014
Endowment Fund Activity
May 31, 2014 Temporarily Permanently Unrestricted Restricted Restricted Total
Donor restricted endowment funds $ - $ 1,834,000 $ 18,773,000 $ 20,607,000 Board-designated funds 48,271,000 - - 48,271,000
Total $ 48,271,000 $ 1,834,000 $ 18,773,000 $ 68,878,000
Net assets, beginning of year $ 40,670,000 $ 1,821,000 $ 16,735,000 $ 59,226,000
Investment return: Investment income 1,823,000 119,000 - 1,942,000 Net realized gains 358,000 - - 358,000 Net unrealized gains 7,010,000 439,000 499,000 7,948,000
Net investment gain 9,191,000 558,000 499,000 10,248,000
Contributions 553,000 - 1,539,000 2,092,000
Appropriation of endowment assets for operations (draw) (2,143,000) (545,000) - (2,688,000)
Total $ 48,271,000 $ 1,834,000 $ 18,773,000 $ 68,878,000
20 Arcadia University Notes to Financial Statements May 31, 2014
11. Capital Projects
There were no major capital projects started or completed in the year ended May 31, 2014.
12. Retirement Plan
All full-time employees of the University are eligible to participate in the University’s defined contribution retirement plan. Covered employees may choose between either Teachers Insurance and Annuity Association or the Vanguard Group as their plan trustee. The University’s matching contribution is 100% of the first 6.0% of employee contributions. Employee contributions of 6.5% and greater are matched by a University contribution of 8.0%. The plan is fully funded and the participants’ interest is fully vested. The University contributed $1,897,000 to the plans during the year ended May 31, 2014.
13. Postretirement Medical Benefits
The University provides postretirement medical benefits to all employees who meet certain eligibility requirements. The University accrues for expected medical and other postretirement benefits over the years that the employees render the necessary service. Contributions to the plan are equal to benefit payments.
The University recognizes the funded status of its defined benefit postretirement plans in the statement of financial position. The University recorded additions to net assets of $1,530,000 for the year ended May 31, 2014.
21 Arcadia University Notes to Financial Statements May 31, 2014
Reconciliation of Benefit Obligation, Plan Assets and Funded Status
2014 (In Thousands)
Change in benefit obligation: Benefit obligation, beginning of year $ 9,321
Service cost 332 Interest cost 357 Change in plan (2,981) Actuarial loss 1,409 Benefits paid (289)
Benefit obligation, end of year $ 8,149
Change in plan assets: Fair value of plan assets, beginning of year $ -
Employer contribution 289 Benefits paid (289)
Fair value of plan assets, end of year $ -
2014 (In Thousands)
Funded status $ (8,149)
Accrued benefit cost $ (8,149)
Amounts Recognized in Accumulated Unrestricted Net Assets
2014 (In Thousands)
Net loss $ 5,856 Prior service credit (3,321)
Accrued benefit cost $ 2,535
22 Arcadia University Notes to Financial Statements May 31, 2014
Weighted Average Assumptions Used to Determine Benefit Obligations at Year-End
2014
Discount rate 4.5 % Medical cost trend: Increase from current to next fiscal year 7.0 % Ultimate rate of increase 5.0 % Fiscal year that the ultimate rate is attained 2023 Prescription drug cost trend: Increase from current to next fiscal year 7.0 % Ultimate rate of increase 5.0 % Fiscal year that the ultimate rate is attained 2023
Weighted-Average Assumptions Used to Determine Net Periodic Benefit Cost
2014
Discount rate 5.0 % Expected return on assets N/A Rate of compensation increases N/A Healthcare cost trend: Increase from current to next fiscal year 7.0 % Ultimate rate of increase 5.0 % Fiscal year that the ultimate rate is attained 2018 Prescription drug cost trend: Increase from current to next fiscal year 7.0 % Ultimate rate of increase 5.0 % Fiscal year that the ultimate rate is attained 2018
Net Periodic Postretirement Benefit Cost
2014 (In Thousands)
Service cost $ 332 Interest cost 357 Amortization of prior service credit (447) Amortization of net actuarial loss 405
Net periodic postretirement benefit cost $ 647
23 Arcadia University Notes to Financial Statements May 31, 2014
Estimated Amounts to be Amortized from Accumulated Unrestricted Net Assets into Net Periodic Benefit Cost over the Next Fiscal Year
2014 (In Thousands)
Net loss $ 520 Prior service credit (617)
Estimated Future Benefit Payments
The benefit payments, which reflect expected future service, as appropriate, are expected to be paid as follows (in thousands):
2015 $ 301 2016 279 2017 307 2018 339 2019 365 2020-2023 2,274
Contributions expected to be paid to the plan in the next fiscal year $ 301
Healthcare Cost Trend Rate
Assumed medical cost trend rate for the next year 7.0% 7.0% in FY16, then 6.5% for General description of the direction and pattern of change in two years, and so forth to an the assumed medical trend rates thereafter ultimate trend of 5.0% Ultimate trend rate and when that rate is expected to be achieved 5.0% Assumed prescription drug cost trend rate for the next year 7.0% 7.0% in FY16, then 6.5% for General description of the direction and pattern of change in two years, and so forth to an the assumed prescription drug cost trend rates thereafter ultimate trend of 5.0% Ultimate trend rate and when that rate is expected to be achieved 5.0% One percentage point increase: Effect on total service and interest cost $ 104 Effect on end of year postretirement benefit obligations $ 1,332 One percentage point decrease: Effect on total service and interest cost $ (84) Effect on end of year postretirement benefit obligations $ (1,087)
24 Arcadia University Notes to Financial Statements May 31, 2014
ASC 220-10 Disclosures for Change in Accumulated Unrestricted Net Assets
May 31, 2014 Amount (In Thousands)
Prior service cost from plan amendment during the year $ (2,981) Less: amortizations of all prior service costs included in net periodic cost (447)
Net prior service cost arising during the year (2,534)
Net loss arising during the year 1,409 Amortization of total loss included in periodic cost 405
Net loss arising during year 1,004
Amortization of transition obligation (asset) -
Change in Accumulated Unrestricted Net Assets Reflected in Unrestricted Net Assets $ (1,530)
14. Fair Value Disclosure
Fair Value Measurements
The University has categorized its financial instruments, based on the priority of the inputs to the valuation technique, into a three-level fair value hierarchy. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical financial assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the hierarchy are described below:
Level 1 - Financial assets and liabilities whose values are based on unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
25 Arcadia University Notes to Financial Statements May 31, 2014
Level 2 - Financial assets and liabilities whose values are based on one or more of the following:
1. Quoted prices for similar assets or liabilities in active markets;
2. Quoted prices for identical or similar assets or liabilities in non-active markets;
3. Pricing models whose inputs are observable for substantially the full term of the asset or liability; or
4. Pricing models whose inputs are derived principally from or corroborated by observable market data through correlation or other means for substantially the full term of the asset or liability.
Level 3 - Financial assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable. These inputs reflect management’s own assumptions about the assumptions a market participant would use in pricing the asset or liability.
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The University’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.
Both observable and unobservable inputs may be used to determine the fair value of positions that the University has classified within the Level 3 category. As a result, the unrealized gains and losses for assets and liabilities within the Level 3 category presented in the tables below may include changes in fair value that were attributable to both observable (e.g., changes in market interest rates) and unobservable (e.g., changes in unobservable long-dated volatilities) inputs.
A review of the fair value hierarchy classifications is conducted on an annual basis. Changes in the type of inputs may result in a reclassification for certain financial assets or liabilities. Reclassifications impacting Level 3 of the fair value hierarchy are reported as transfers in/out of the Level 3 category as of the beginning of the year in which reclassifications occur.
26 Arcadia University Notes to Financial Statements May 31, 2014
The following table presents information about the University’s assets and liabilities measured and disclosed at fair value as of May 31, 2014 and indicates the fair value hierarchy of the valuation techniques utilized by the University to determine such fair value.
May 31, 2014 Level 1 Level 2 Level 3 Total
Reported at Fair Value Equity funds: Large cap $ 17,286 $ - $ - $ 17,286 Small cap 4,104 - - 4,104 Mid cap 3,579 - - 3,579 International 11,847 - - 11,847
Total equity funds 36,816 - - 36,816
Fixed income funds: Intermediate term bonds 11,255 - - 11,255 Short term bonds 2,792 - - 2,792
Total fixed income funds 14,047 - - 14,047
Alternative investments: Private equity - - 1,671 1,671 Hedge - 4,197 - 4,197 Real Asset Strategies - 3,435 - 3,435 Natural Resources - - 994 994 Venture capital - - 1,169 1,169 Fixed income - - 596 596
Total alternative investments - 7,632 4,430 12,062
Forward foreign exchange contracts - 899 - 899 Other investments 916 - 2,173 3,089 Deposits with bond trustees 21,586 - - 21,586 Trust funds held by others - - 2,778 2,778
Total $ 73,365 $ 8,531 $ 9,381 $ 91,277
Disclosed at Fair Value Assets: Cash and cash equivalents $ 18,563 $ - $ - $ 18,563 Restricted cash 132 - - 132 Contributions receivable, net - - 1,453 1,453 Student loans receivable, net - 5,610 - 5,610
Liabilities: Long-term debt (carrying value of $91,535) $ - $ 95,230 $ - $ 95,230 Annuities payable - - 294 294 Refundable loan funds - 773 - 773
27 Arcadia University Notes to Financial Statements May 31, 2014
The following table presents a reconciliation of the beginning and ending balances of assets with fair value measurements using significant unobservable inputs (Level 3) as of May 31, 2014:
2014 (In Thousands)
Balance, beginning $ 10,883 Purchases 185 Distributions (4,567) Realized and unrealized gains 2,880
Balance, ending $ 9,381
The University has a policy which permits investments that do not have a readily determinable fair value, and as such, has elected to use the net asset value per share (the “NAV”) as calculated on the reporting entity’s measurement date as the fair value of the investment. The University measures the fair value of an investment that does not have a readily determinable fair value, based on the NAV of the investment as a practical expedient, without further adjustment, unless it is probable that the investment will be sold at a value significantly different than the NAV. If the practical expedient NAV is not as of the reporting entity’s measurement date, then the NAV is adjusted to reflect any significant events that would materially affect the value of the security and the NAV of the University as of the valuation date. In using the NAV as a practical expedient, certain attributes of the investment, that may impact the fair value of the investment, are not considered in measuring fair value. Attributes of those investments include the investment strategies of the investees and may also include, but are not limited to, restrictions on the investor’s ability to redeem its investments at the measurement date at NAV as well as any unfunded commitments. A listing of the investments held by the University and their attributes, that may qualify for these valuations consist of the following as of May 31:
2014 Redemption Investment Investment Unfunded Redemption Notice Category Strategy Fair Value Commitment Frequency Period (In Thousands) (In Thousands)
Hedged equity Funds are designed to offer $ 4,197 N/A Quarterly income N/A investors access to a distributions. diversified hedged equity investment program with less volatility than the S&P 500 over a market cycle. The funds allocate assets to sub- advisers with a primary focus on selection of long and short positions in equity securities that are primarily, but not exclusively, marketable securities issued by U.S. companies.
28 Arcadia University Notes to Financial Statements May 31, 2014
2014 Unfunded Redemption Investment Investment Fair Value Commitments Redemption Notice Category Strategy (Thousands) (Thousands) Frequency Period (In Thousands) (In Thousands)
Natural resources Investment of funds in $ 994 241 Quarterly income N/A limited partnerships, distributions. which in turn, make oil, $ gas, timber and other natural resource-related investments with the objective of obtaining long-term growth of capital. Real Asset Strategy Investment of emerging 3,435 N/A Quarterly income N/A market bonds, emerging distributions market equities, high yield market bonds, equities and commodities in the energy and precious metals sectors with objective to provide returns and hedge against inflation
Venture capital Invests primarily in other 1,169 108 Quarterly income N/A limited partnerships distributions. formed for the purpose of making venture capital investments in emerging growth companies. Generally, these investments may not be transferred or withdrawn prior to the termination of limited partnerships, which generally have a term of ten years.
Private equity Invests primarily in other 1,671 $ 246 Quarterly income Up to 90 days limited partnerships distributions. formed for the purpose of making investments in equity securities, warrants or other options, focused either domestically or internationally, that are generally not actively traded at the time of investment. Generally, these investments may not be transferred or withdrawn prior to the termination of limited partnerships, which generally have a term of ten years.
29 Arcadia University Notes to Financial Statements May 31, 2014
2014 Redemption Investment Investment Unfunded Redemption Notice Category Strategy Fair Value Commitments Frequency Period (In Thousands) (In Thousands)
Fixed income Invests in partnerships $ 596 $ 153 Quarterly income Up to 90 days offered by top-tier distributions. distressed debt managers. The partnerships focus primarily on investments in securities and other obligations of distressed businesses and financially troubled companies that are priced at significant discounts to their original value.
The following provides a brief description of the types of financial instruments the University holds, the methodology for estimating fair value, and the level within the hierarchy of the estimate.
A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.
Equity Funds: These are securities which are traded on a recognized liquid exchange. The closing price of the security as of the reporting date is used to determine fair value. This is considered a Level 1 input in the hierarchy.
Fixed Income Funds: Fixed income investments include cash, cash equivalents, and bonds. They are traded in active markets and values are based on unadjusted quoted prices. They are considered a Level 1 input in the hierarchy.
Alternative Investments: Alternative investments include real estate, venture capital, hedge funds, real return asset funds, domestic and international private equity, distressed debt, commodities, and natural resources. Fair values of investments within Level 2 are valued at the respective net asset values of the underlying investments. Certain other investments valued at net asset value are considered Level 3 inputs in the hierarchy based on the investments not having an observable market and the need for significant estimation to measure fair value.
30 Arcadia University Notes to Financial Statements May 31, 2014
Other Investments: Other investments include split-interest investments and a mutual fund. The split-interest investments are traded in active markets with fair values determined either at the closing price of the reporting date or unadjusted quoted prices. These are considered a Level 1 input in the hierarchy. Also included in other investments is an investment in a private company. This investment is considered a Level 3 input in the hierarchy.
Forward Foreign Exchange Contracts: These are contracts entered into 15 to 18 months in advance for operating expenditures in the University’s overseas programs. Fair value is based on closing currency exchange rates as of the reporting date. These are considered a Level 2 input in the hierarchy.
Trust Funds Held By Others: These funds are neither in the possession, nor under the control, of the University. Such terms provide that the University is to receive a certain percentage of the income earned by the funds which are held in trust. Because of the permanent right of the University to its share of the trusts’ earnings, the University reports its share of these trusts as trust funds held by others. These are considered a Level 3 input in the hierarchy.
Cash, Cash Equivalents and Restricted Cash: These financial instruments approximate fair value due to their short-term maturity. These are considered Level 1 measurements due to their liquidity.
Contributions Receivable: Fair value is considered to approximate its carrying value estimated based on future cash flows discounted at risk adjusted rates ranging from 2% to 4% which are considered to be Level 3 inputs.
Annuities Payable: The fair value is considered to approximate its carrying value based on discounted cash flows using market rates which are considered to be Level 3 inputs.
Loans Receivable, Net and Refundable Loan Funds: The carrying amounts of these financial instruments approximate the fair value. The fair value of these loans receivable and advances from the federal government are based upon management’s best estimate of the indicated future cash flows discounted at interest rates required by market participants, which are considered to be Level 2 measurements.
Long-Term Debt: The estimated fair value is based on quoted market prices for the same or similar issues with similar security terms and maturities which are considered to be Level 2 measurements.
31 Arcadia University Notes to Financial Statements May 31, 2014
15. Lease Commitments
Capital Lease Obligations
The University leases certain equipment under the terms of lease agreements that have been classified as capital leases. The following summarizes the changes in capital lease obligations in 2014 (in thousands):
Balance, May 31, 2013 $ 89 Additions - Payments (29)
Balance, May 31, 2014 $ 60
The following is a schedule of future minimum lease payments under these leases, together with the present value of the net minimum lease payments as of May 30, 2014:
Years ending May 31: 2015 $ 32 2016 22 2017 12
Total minimum lease payments 66
Less amount representing interest 6
Present value of net minimum lease payments $ 60
Interest expense on capital leases was $9,000 for the year ended May 31, 2014.
32 Arcadia University Notes to Financial Statements May 31, 2014
Operating Leases
The University has several operating leases for office space and athletic fields. These leases range from one to five years. The College of Global Studies also leases certain overseas properties as offices and student accommodations. These leases have original terms ranging from three months to ten years, and are also accounted for as operating leases. In the normal course of business, most operating leases are renewed or replaced by other leases. Rent expense was $1,642,000 for the year ended May 31, 2014. Aggregate future minimum lease payments under operating leases subsequent to May 31, 2014 are as follows (in thousands):
Years ending May 31: 2015 $ 1,276 2016 931 2017 907 2018 775 2019 629 Thereafter 3,240
Total $ 7,758
16. Related Party Transactions
During the year ended May 31, 2014, the University held an investment in a private company totaling approximately $2,174,000 in which a member of the Board of Trustees is a shareholder/director.
17. College of Global Studies
The College of Global Studies (“TCGS”) was originally founded in 1965 as a program to facilitate overseas study by Arcadia University undergraduates. TCGS has grown in 45 years to become one of the largest study abroad providers in the nation, sending over 2,750 students from over 350 home institutions to more than 100 programs in 15 foreign countries. The University bills the students, collects the receipts and pays the students’ tuition, housing, and other program costs.
33 Arcadia University Notes to Financial Statements May 31, 2014
18. Contingencies
The nature of the educational industry is such that, from time to time, claims will be presented against the University on account of alleged negligence, acts of discrimination, breach of contract, or disagreements arising from the interpretation of laws and regulations. While some of these claims may be for substantial amounts, they are not unusual in the ordinary course of providing educational services. Management of the University believes that these claims and their resolution will not have a significant impact on the University’s financial position.
34
Arcadia University
Financial Statements
May 31, 2013
Arcadia University Table of Contents May 31, 2013
Page
Independent Auditors’ Report 1
Financial Statements
Statement of Financial Position 3
Statement of Activities 4
Statement of Cash Flows 5
Notes to Financial Statements 6
Independent Auditors’ Report
Board of Trustees Arcadia University
We have audited the accompanying financial statements of Arcadia University (the “University”), which comprise the statement of financial position as of May 31, 2013, and the related statements of activities and cash flows for the eleven months then ended, and the related notes to the financial statements.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
1
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Arcadia University as of May 31, 2013, and the results of its operations and its cash flows for the eleven months then ended in accordance with accounting principles generally accepted in the United States of America.
Philadelphia, Pennsylvania October 18, 2013
2 Arcadia University Statement of Financial Position May 31, 2013 (In Thousands) 2013
Assets
Cash and cash equivalents $ 14,008 Restricted cash 1,673 Investments 57,588 Student accounts receivable, net 3,037 Contributions receivable, net 1,463 Student loans receivable, net 5,416 Inventories, prepaid expenses and other assets 6,510 Land, buildings and equipment, net 119,672 Deposits with bond trustees 11,558 Trust funds held by others 3,979
Total assets $ 224,904
Liabilities and Net Assets
Liabilities Accounts payable $ 1,976 Accrued expenses 7,029 Deferred revenue and deposits 10,920 Line of credit 1,500 Current maturities of long-term debt 1,735 Capital lease obligation 89 Annuities payable 248 Accrued postretirement benefits 9,321 Asset retirement obligation 2,379 Refundable loan funds 773 Long-term debt 76,105
Total liabilities 112,075
Net Assets Unrestricted 87,110 Temporarily restricted 8,984 Permanently restricted 16,735
Total net assets 112,829
Total liabilities and net assets $ 224,904
See notes to financial statements 3 Arcadia University Statement of Activities Eleven Months Ended May 31, 2013 (In Thousands)
Temporarily Permanently Unrestricted Restricted Restricted Total
Operating Activities Arcadia University Operations
Operating Revenues Student tuition and fees, net of financial assistance provided of $36,955 $ 60,636 $ - $ - $ 60,636 Sales and service of auxiliary enterprises, net of financial assistance provided of $1,456 11,873 - - 11,873 Government grants 1,017 1,717 - 2,734 Private gifts and grants 1,139 793 - 1,932 Endowment income 1,436 558 - 1,994 Investment income 90 - - 90 Other sources 240 - - 240 Net assets released from restrictions 1,109 (1,109) - -
Total operating revenues 77,540 1,959 - 79,499
Operating Expenses Instruction 32,332 - - 32,332 Academic support 7,366 - - 7,366 Student services 13,388 - - 13,388 Institutional support 11,829 - - 11,829 Auxiliary enterprises 11,258 - - 11,258
Total operating expenses 76,173 - - 76,173
Change in net assets from operations - Arcadia University 1,367 1,959 - 3,326
College of Global Studies Operating revenues, net of financial assistance provided of $625 42,859 - - 42,859 Operating expenses 40,097 - - 40,097
Change in net assets from operations - College of Global Studies 2,762 - - 2,762
Change in net assets from operating activities 4,129 1,959 - 6,088
Non-Operating Activities Endowment and other gifts - - 266 266 Change in fair value of future foreign exchange contracts 219 - - 219 Change in fair value of investments 5,473 1,374 113 6,960 Change in benefit obligation 337 - - 337
Change in net assets from non-operating activities 6,029 1,374 379 7,782
Total change in net assets 10,158 3,333 379 13,870
Net Assets, Beginning of Period 76,952 5,651 16,356 98,959
Net Assets, End of Period $ 87,110 $ 8,984 $ 16,735 $ 112,829
See notes to financial statements 4 Arcadia University Statement of Cash Flows Eleven Months Ended May 31, 2013 (In Thousands) 2013
Cash Flows from Operating Activities Change in net assets $ 13,870 Adjustments to reconcile change in net assets to net cash provided by operating activities: Depreciation and amortization 6,156 Provision for loss on accounts receivable 639 Contributions restricted for long-term investments (266) Contributions restricted for long-lived assets (96) Permanently restricted gain on investments (113) Change in fair value of investments and foreign exchange contracts (7,066) Gain on investment in joint venture (281) Change in benefit obligation (337) Change in asset retirement obligation 128 (Increase) decrease in: Restricted cash (278) Student accounts receivable (241) Contributions receivable 389 Student loans receivable (576) Inventories, prepaid expenses and other assets (1,490) Increase (decrease) in: Accounts payable and accrued expenses (60) Deferred revenue and student deposits (3,022) Accrued postretirement benefits 689 Annuities payable 2
Net cash provided by operating activities 8,047
Cash Flows from Investing Activities Purchase of land, buildings and equipment (11,547) Proceeds from sale of investments 36,785 Purchase of investments (37,446) Use of deposits with bond trustees 9,676 Additions to deposits with bond trustees (5,373)
Net cash used in investing activities (7,905)
Cash Flows from Financing Activities Principal payments on long-term debt (1,575) Proceeds from line of credit 4,500 Payments on line of credit (3,000) Payments on capital lease obligation (75) Contributions restricted for long-lived assets 96 Contributions restricted for endowment 266
Net cash provided by financing activities 212
Net increase in cash and cash equivalents 354
Cash and Cash Equivalents, Beginning 13,654
Cash and Cash Equivalents, Ending $ 14,008
Supplemental Disclosure of Noncash Financing Activities Cash paid for interest, net of amounts capitalized $ 3,829
Land, buildings and equipment in accounts payable $ 168
Assets acquired under capital lease $ 43
See notes to financial statements 5 Arcadia University Notes to Financial Statements May 31, 2013
1. Organization
Arcadia University (the “University”), founded in 1853, offers a wide array of liberal arts and professional programs. The University offers high quality, undergraduate degree programs in more than 30 fields of study, as well as graduate degrees and certificates of advanced study. The University also offers one of the largest campus-based study abroad programs in the country. Through the College of Global Studies, students may participate in any of more than 100 programs in 15 foreign countries.
The University changed its fiscal year end from June 30 to May 31. The financial statement for the current fiscal year is for the eleven month period from July 1, 2012 to May 31, 2013.
2. Summary of Significant Accounting Policies
Basis of Presentation
The University’s financial statements have been prepared on the accrual basis of accounting in conformity with accounting principles generally accepted in the United States of America. The University reports total assets, liabilities and net assets in a statement of financial position; reports the change in net assets in a statement of activities; and reports the sources and uses of cash and cash equivalents in a statement of cash flows.
Net assets and revenues, gains, expenses and losses are classified as unrestricted, temporarily restricted or permanently restricted based on the existence or absence of donor- imposed restrictions as follows:
Permanently restricted - Net assets subject to donor-imposed stipulations that are maintained permanently by the University. Generally, the donors of these assets permit the University to use all or part of the income earned on these assets. Such assets primarily include the University’s permanent endowment funds.
Temporarily restricted - Net assets whose use by the University is subject to donor- imposed stipulations that can be fulfilled by actions of the University pursuant to those stipulations or that expire by the passage of time. Contributions received with donor imposed restrictions that are met in the same year as received are recorded as temporarily restricted revenue and subsequently released from restriction.
Unrestricted - Net assets that are not subject to donor-imposed stipulations. Unrestricted net assets may be designated for specific purposes by action of the Board of Trustees.
Cash and Cash Equivalents
The University treats all highly liquid investments with an average maturity of 90 days or less at the time of purchase as cash equivalents. These investments include cash, certificates of deposit and money market funds.
6 Arcadia University Notes to Financial Statements May 31, 2013
Restricted Cash
Restricted cash includes funds legally restricted for certain construction projects and funds held on tenant deposits.
Concentration of Credit Risk
Financial instruments of the University that expose it to concentration of credit risk consist primarily of cash and cash equivalents, trust funds held by others and investments. These funds are held in various high quality financial instruments managed by University personnel or outside advisors. The University believes that concentration of credit risk is limited with respect to its cash and cash equivalents, investments and trust funds held by others.
Other financial instruments that potentially subject the University to concentrations of credit risk are receivables. Receivables result primarily from tuition and fees, student loans and contributions. Concentrations of credit risk with respect to contributions receivable are limited due to the composition of the University's contributor base.
Investments
The University accounts for its investments in marketable securities at their fair value. Adjustments to reflect increases or decreases in market value, referred to as change in market value of investments, are reported in the statement of activities.
Realized gains and losses arising from the sale of investments and ordinary income from investments are reported as changes in unrestricted net assets unless their use is temporarily or permanently restricted by explicit donor imposed stipulations.
Equity and fixed income mutual funds are valued at quoted market prices. The University also invests in a variety of alternative investments. Alternative investments include hedge funds, limited partnership funds, private equity and other funds. In the absence of readily determinable fair value, fair value is determined based on a review of audited financial statements of the underlying funds, when available, and other information provided by fund managers, and research performed by the University’s management. Investments in such funds do carry certain risks including lack of regulatory oversight, interest rate risk and market risk. Due to the level of risk associated with these investments and the level of uncertainty related to changes in the fair value of investment securities, it is at least reasonably possible that changes in risk factors in the near term would materially affect the amounts reported in the statement of financial position.
At May 31, 2013, the University had remaining capital commitments on alternative investments of $933,000.
7 Arcadia University Notes to Financial Statements May 31, 2013
Receivables
Student accounts receivable include all current accounts receivable related to student transactions net of allowances of $5,931,000 as of May 31, 2013. The allowance for doubtful accounts is provided based upon management’s judgment including such factors as prior collection history and type of receivable. The University writes-off receivables when they become uncollectible, and payments subsequently received on such receivables are credited to the allowance for doubtful accounts. All accounts over one year old have been written off or fully reserved.
Contributions receivable include all unconditional promises to give less management’s estimate of an allowance to reflect their net realizable value.
The student loans receivable represent loans to students funded by advances to the University by the federal government under the Federal Perkins Loan Program (the “Program”). Currently, eligible students receive loan funds under this program at a fixed rate of five percent. Funding for the program comes from prior program loans already in repayment, federally contributed funds and institutionally contributed funds. The University acts as custodian of all Perkins federal student program loan funds and loans receivable. In the event that the University ceases to participate in the Program, the amounts are refundable to the federal government. Such funds may be re-loaned by the University after collection, but in the event that the University no longer participates in the Program, the amounts are refundable to the federal government. The federal government’s portion of these funds at May 31, 2013 was $773,000. As of May 31, 2013, $746,000 was carried as student loans receivable related to the Program.
The prescribed practices for the Program do not provide for accrual of interest on student loans receivable. Accordingly, interest on loans is recorded as received and is reinvested to support additional loans; uncollectible loans are not recognized until the loans are canceled or written-off in conformity with the Program’s requirements. The impact of recording interest income on a cash basis is not considered significant. In addition, the credit quality of the student is not evaluated after the initial approval and calculation of the loans. Delinquent loans and the allowance for losses on loans receivable are reviewed by management, but are not material to the overall financial statements.
The University participates in the Federal Direct Loan Program. Funds owed to Arcadia from the government as a result of the Direct Loan program were $4,670,000 at May 31, 2013.
Revenue Recognition
Tuition revenue is recorded at established rates net of financial assistance provided directly by the University. The University recognizes tuition revenue in the academic period that it is earned. Any payments received in advance for the subsequent year are classified as deferred revenue in the statement of financial position.
8 Arcadia University Notes to Financial Statements May 31, 2013
The University records unconditional promises to give as receivables. The University reports gifts of cash and other assets as restricted support if they are received with donor stipulations that limit the use of the donated assets. When a donor restriction expires, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statement of activities as net assets released from restrictions.
The University reports gifts of land, buildings and equipment as unrestricted support unless explicit donor stipulations specify how the donated assets must be used. Gifts of long-lived assets with explicit restrictions that specify how the assets are to be used and gifts of cash or other assets that must be used to acquire long-lived assets are reported as restricted support. Absent explicit donor stipulations about how long those long-lived assets must be maintained, the University reports expirations of donor restrictions when the donated or acquired long-lived assets are placed in service.
Charitable Gift Annuities
The University has entered into charitable gift annuity agreements. Revenue is recognized pursuant to the annuity agreements based on the fair value of the assets contributed less a liability for the present value of the payments expected to be made to the beneficiaries.
The fair value of assets for the charitable gift annuities was $559,000 at May 31, 2013 and is included in investments in the statement of financial position. The liability associated with the annuities was $248,000 at May 31, 2013.
Inventories
Inventories are valued at cost using the average cost method. The University’s inventories consist of office and physical plant supplies.
Deposits with Bond Trustees
Deposits with bond trustees consist primarily of cash and cash equivalents, U.S. government securities and other fixed income funds which are held by a trustee in fulfillment of debt related indentures. These funds are restricted to future debt service or projects as defined by the debt indenture.
Land, Buildings and Equipment
Land, buildings and equipment are stated at cost less accumulated depreciation. Expenditures for new construction, major renewals and replacements and equipment costing over $5,000 are capitalized. Land, buildings and equipment are depreciated over their estimated useful lives using the straight-line method (15 years for land improvements; 15-50 years for buildings and improvements; 3-7 years for furniture and equipment and 10 years for library holdings). Upon retirement or disposition of the land, buildings and equipment, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in the statement of activities.
9 Arcadia University Notes to Financial Statements May 31, 2013
Derivative Financial Instruments
The functional currency for the majority of the University’s international programs is the applicable local currency. The University sets prices for its international programs in U.S. dollars 9 to 18 months prior to the program start date. The University is therefore subject to a significant amount of foreign exchange risk. In order to offset this exchange risk, it is the University’s practice to purchase forward foreign exchange contracts with major banks. No cash is exchanged at the time a foreign exchange contract commitment is made, however, the contract implies an irrevocable promise by the University to purchase a specified amount of foreign currency at a specific price.
The University has determined that its use of forward foreign exchange contracts qualifies as a future-hedging instrument, and as such, is measured at fair value and recognized as either an asset or liability on the statement of financial position and that changes in the fair value of derivative instruments are recognized as changes in fair value on the statement of activities. The University recorded a cumulative gain adjustment of $219,000 to record the fair value of outstanding forward foreign exchange contracts at May 31, 2013.
At May 31, 2013, the University held $30,895,000 in forward foreign exchange contracts with fair values of $29,732,000. At May 31, 2013, the accumulated changes in fair value of the future foreign exchange contracts of $(1,163,000) are included within investments on the statement of financial position. The change in fair value is recorded as a non-operating gain or loss in the statement of activities.
Fund Raising Expenses
For the eleven months ending May 31, 2013, direct expenses for fund raising were $1,267,000.
Non-Operating Activities
The University considers endowment gifts, net unrealized and realized gains and losses on sale of investments, endowment income in excess or deficiency of its 5% spending policy, changes in the fair value of forward foreign exchange contracts, changes in the postretirement medical benefits obligation and unusual and other, non-recurring transactions to be non-operating activities.
Foreign Currency Translation
The translation from the applicable foreign currencies to U.S. dollars is performed for statement of financial position accounts using current exchange rates in effect at the statement of financial position date and for revenue and expense accounts using a weighted average exchange rate for the eleven month period ended May 31, 2013.
Allocation of Certain Expenses
The statement of activities presents expenses by functional classification. Operation and maintenance of physical plant and related interest, depreciation, and accretion are allocated based on square footage.
10 Arcadia University Notes to Financial Statements May 31, 2013
Income Taxes
The University is exempt from federal income taxes under Section 501(c)(3) of the Internal Revenue Code. Accordingly, no provision for income taxes is made in the financial statements.
The University follows the Financial Accounting Standards Board (“FASB”) guidance that requires a tax position to be recognized or derecognized based on a “more likely than not” threshold. This applies to positions taken or expected to be taken in a tax return. The University does not believe its financial statements include any uncertain tax positions.
The University’s policy is to recognize interest related to unrecognized tax benefits in interest expense and penalties in operating expenses. No interest or penalties were recognized in 2013.
The University’s federal Exempt Organization Business Income Tax Returns for 2013, 2012, and 2011 remain subject to examination by the Internal Revenue Service.
Use of Estimates
The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Subsequent Events
The University evaluated subsequent events for recognition or disclosure through October 18, 2013, the date the financial statements were issued.
New Accounting Standard
The FASB issued Accounting Standards Update (“ASU”) No. 2011-04, Fair Value Measurements and Disclosures (Topic 820): Amendments to Achieve Common Fair Value Measurements and Disclosure Requirements in U.S. GAAP and IFRSs. ASU 2011-04 includes new and clarified guidance on fair value measurements and required additional disclosures. The adoption of the amended guidance required certain additional disclosures regarding fair value measurements in the notes to the financial statements on a prospective basis.
11 Arcadia University Notes to Financial Statements May 31, 2013
In October 2012, the FASB issued ASU 2012-05, Statement of Cash Flows (Topic 230): Not-for-Profit Entities: Classification of the Sale of Proceeds of Donated Financial Assets in the Statement of Cash Flows. This amendment addresses the diversity in practice with regard to the presentation of cash receipts from the sale of donated assets in the statement of cash flows. Under this update, a non-for-profit entity will be required to classify cash receipts from the sale of donated financial assets as cash inflows from operating activities, unless the donor restricted the use of the contributed resources to long-term purposes. This update is effective for the University’s fiscal year beginning June 1, 2014. The guidance is prospective and management does not believe the adoption of this ASU will have a significant impact on the University’s financial statements.
In April 2013, the FASB issued ASU 2013-06, Not-for Profit Entities (Topic 958): Services Received from Personnel of an Affiliate. This amendment will require a recipient non-for- profit entity to recognize all services received from personnel of an affiliate that directly benefits the recipient not-for-profit entity. Such services will be required to be measured at the cost recognized by the affiliate for the personnel providing those services. However, if this measurement will significantly overstate or understate the value of the service received, the recipient not-for-profit entity may elect to recognize that services received at either the cost recognized by the affiliate for the personnel providing that service or the fair value of that service. This update is effective for the University’s fiscal year beginning June 1, 2015. The guidance is prospective and management does not believe the adoption of this ASU will have a significant impact on the University’s financial position or results of operations.
3. Investments
The University’s investments were as follows:
May 31, 2013 (In Thousands)
Mutual funds: Equity funds $ 31,541 Fixed income funds 12,691
Total mutual funds 44,232
Other investments 2,484 Alternative investments 12,035 Forward foreign exchange contracts (1,163)
Total $ 57,588
Investment management and custodial fees are netted against investment returns and were approximately $269,000 for the eleven months ending May 31, 2013.
12 Arcadia University Notes to Financial Statements May 31, 2013
4. Contributions Receivable
Contributions receivable include all unconditional promises to give and are measured at fair value on a non-recurring basis. Contributions that are expected to be collected within one year are recorded at net realizable value. Contributions that are expected to be collected in future years are recorded at the present value of their estimated future cash flows with a discount rate adjusted for market conditions to arrive at fair value. Amortization of the discounts is included in contribution revenue. Conditional promises to give are not included as support until the conditions are substantially met.
Included in contributions receivable are the following unconditional promises at:
May 31, 2013 (In Thousands)
Unconditional promises expected within 1 year $ 847 Unconditional promises expected between 1-5 years 940
Total 1,787
Less: Discount 56 Allowance for uncollectibles 268
Total 324
Unconditional promises to give net of unamortized discount and allowance for uncollectible amounts $ 1,463
13 Arcadia University Notes to Financial Statements May 31, 2013
5. Land, Buildings and Equipment
Land, buildings and equipment consisted of the following:
May 31, 2013 (In Thousands)
Land and land improvements $ 15,863 Buildings and improvements 139,563 Furniture and equipment 35,942 Library holdings 3,457 Construction in progress 2,060
Total 196,885
Less accumulated depreciation 77,213
Total $ 119,672
The University incurred depreciation expense of $6,067,000 during the eleven months ending May 31, 2013.
6. Asset Retirement Obligation The University recognizes the cost associated with the eventual remediation and abatement of asbestos and other regulated substances located within the construction of the University’s land, buildings and equipment. The cost of the abatement was estimated utilizing an externally conducted survey for asbestos identification and contractor estimates for remediation integrated with management’s future remediation plans. The University recorded an asset retirement obligation liability of $2,379,000 at May 31, 2013. Included in the balance for accretion of interest related to conditional asset retirement obligations recognized is $128,000 for the eleven months ending May 31, 2013. There were no actual remediation and abatement costs for the eleven months ending May 31, 2013.
14 Arcadia University Notes to Financial Statements May 31, 2013
7. Long-Term Debt
Long-term debt at May 31, 2013 consisted of the following:
Interest Rate Principal Percent Term Balance (In Thousands)
University revenue bonds: Fixed rate issues Montgomery County Higher Education and Health Authority Series 2006 3.40-5.00 2006-2036 $ 38,765 Series 2006 (2nd Series) 3.80-5.00 2006-2027 11,375 Series 2010 4.80-5.60 2010-2040 23,000
Variable rate issue Pennsylvania Higher Education Facilities Authority Series of 2001 Variable 2003-2021 4,700
Total debt 77,840
Current maturities of long-term debt 1,735
Total long-term debt $ 76,105
In May 2010, the University issued $23,000,000 of Montgomery County Higher Education and Health Authority Revenue Bonds, Series of 2010 (2010 Bonds). The 2010 Bonds were issued to finance the costs of various capital projects of the University, to fund a deposit to a debt service reserve fund for the Series 2010 Bonds, and to pay certain costs of issuance.
New capital projects eligible for funding under the 2010 Bonds include the following: (a) the construction and equipping of a new University student center, an approximately 48,000 square foot building to be located adjacent to the existing Kuch Athletic Center, providing spaces for dining, student clubs and activities, meetings and conferences, art exhibits, fitness activities and storage; (b) renovations and improvements to approximately 15,000 square feet of the Kuch Athletic Center to accommodate integration with the new University student center; and (c) other miscellaneous campus improvements, including renovations to the new athletic field along Easton Road, additional parking and parking improvements, classroom and science laboratory renovations, general campus landscaping improvements, and other miscellaneous capital additions, renovations, and improvements, including purchases of capital equipment.
15 Arcadia University Notes to Financial Statements May 31, 2013
In February 2006, the University issued $45,665,000 of Montgomery County Higher Education and Health Authority Revenue Bonds, Series of 2006 (2006 Bonds). The 2006 Bonds were issued to advance refund the outstanding Montgomery County Higher Education and Health Authority Revenue Bonds, Series of 1996 (1996 Bonds) and to provide approximately $28 million for new capital projects and to pay for costs related to issuance. The 2006 Bonds maturing on or after April 1, 2017 are subject to optional redemption by the Authority, as directed by the University, in whole or part anytime after April 1, 2016 at a redemption price of 100% of the principal amount.
In April 2006, the University issued $11,695,000 of Montgomery County Higher Education and Health Authority Revenue Bonds, Second Series of 2006 (2006 Second Series Bonds). The 2006 Second Series Bonds were issued to advance refund the outstanding Montgomery County Higher Education and Health Authority Revenue Bonds, Series of 1999 (1999 Bonds). The 2006 Second Series Bonds maturing on April 1, 2027 are subject to optional redemption by the Authority, as directed by the University, in whole or part anytime after April 1, 2016 at a redemption price of 100% of the principal amount.
In June 2001, the University issued $8,000,000 of Pennsylvania Higher Educational Facilities Authority Revenue Bonds, Series of 2001 (2001 Bonds). This bond issue was part of a financing program of the Association of Independent Colleges and Universities of Pennsylvania (”AICUP”), of which the University is a member. The bonds bear interest at either a weekly or term rate as selected annually by the University. The University has selected a weekly rate since July 2002. At May 31, 2013, the weekly rate was .87% and the principal outstanding was $4,700,000.
The 2001 Bonds were originally issued utilizing a standby letter of credit with Allied Irish Bank which could be drawn upon by the Bond Trustee to cover any defaults as defined under the loan indenture. In April 2010, the Allied Irish Bank Letter of Credit was causing the 2001 Bonds to trade at interest rates much higher than other similar bonds due to the bank’s declining credit rating. In May 2010, the 2001 Bonds failed to remarket and the Trustee called upon the letter of credit to pay the Remarketing Agent. In June 2010, the University reimbursed Allied Irish Bank for the Letter of Credit draw in the amount of $5,900,000, cancelled the Letter of Credit and instructed the Bond Trustee to continue holding the 2001 Bonds as Borrower Bonds. Under the loan agreement, the University may ask the Bond Trustee to instruct the Remarketing Agent to commence selling the bonds either with a new Letter of Credit or on the University’s own credit rating. At May 31, 2013, the 2001 Bonds are shown as both an asset in deposits with Bond Trustees and a liability in current maturities of long term debt.
The 2001 Bonds were issued for (i) the renovation, furnishing and equipping of the Atwood Library of approximately 27,000 square feet; (ii) the construction, furnishing and equipping of an addition to the Atwood Library of approximately 26,000 square feet; (iii) renovation, improvement, furnishing and equipping of various University facilities and campus infrastructure improvements.
16 Arcadia University Notes to Financial Statements May 31, 2013
The terms of the bond indentures contain, among other provisions, requirements for maintaining certain financial ratios, including liquidity and debt service coverage. Aggregate principal payments on bonds payable for each of the next five fiscal years subsequent to May 31, 2013 are as follows (in thousands):
Years ending May 31:
2014 $ 1,735 2015 1,795 2016 1,860 2017 2,030 2018 2,085 Thereafter 68,335
Total $ 77,840
The University incurred interest expense of $3,401,000 for the eleven months ending May 31, 2013.
8. Line of Credit
In August, 2012, the University obtained an unsecured $3,500,000 Line of Credit with a financial institution at a rate equal to the higher of three percent or LIBOR Rate plus two hundred basis points (3% at May 31, 2013). In May 2013, the Line of Credit was renewed at the same rate and increased to $5,000,000. The University borrowed $4,500,000 against the Line of Credit during the eleven months ending May 31, 2013. As of May 31, 2013 there was an outstanding principal balance on the Line of Credit of $1,500,000.
9. Temporarily and Permanently Restricted Net Assets
Temporarily restricted net assets of $8,984,000 as of May 31, 2013 were available for the purposes of instruction, scholarships, capital expenditures and accumulated amounts under the investment spending policy.
Permanently restricted net assets of $16,735,000 as of May 31, 2013 consisted of the principal of endowment gifts and the realized and unrealized gains and losses associated with endowment gifts that were permanently restricted to the endowment by the donor. Income from permanently restricted net assets is restricted to instruction, scholarships or activities that support the mission of the University.
10. Endowments
As required by accounting principles generally accepted in the United States of America, net assets associated with endowment funds, including funds designated by the Board of Trustees to function as endowments, are classified and reported based on the existence or absence of donor-imposed restrictions.
17 Arcadia University Notes to Financial Statements May 31, 2013
The University’s endowment consists of a portfolio of active and passive managed funds established to provide both a source of operating funds as well as long-term financial stability. The endowment includes both donor-restricted endowment funds and funds designated by the Board of Trustees.
The University’s policy requires the preservation of the fair value of the original gift as of the gift date of the donor-restricted endowment funds absent explicit donor stipulations to the contrary. As a result, the University classifies as permanently restricted net assets (a) the original value of gifts donated to the permanent endowment, (b) the original value of subsequent gifts to the permanent endowment, and (c) accumulations to the permanent endowment made in accordance with the direction of the applicable donor gift instrument at the time the accumulation is added to the fund. This is regarded as the “historic dollar value” of the endowed fund. The remaining portion of the donor-restricted endowment fund that is not classified in permanently restricted net assets and is regarded as “net appreciation” is classified as temporarily restricted net assets until those amounts are appropriated for expenditure by the University in a manner consistent with the University’s spending policy.
Funds with Deficiencies
From time to time, the fair value of assets associated with individual donor restricted endowment funds may fall below the “historic dollar value”. Deficiencies of this nature are reported by a charge to unrestricted net assets and a corresponding increase to temporarily restricted net assets. These cumulative charges were approximately $547,000 as of May 31, 2013. These deficiencies resulted from unfavorable market fluctuations that occurred shortly after the investment of new permanently restricted contributions. Over time these may reverse due to appreciation of the underlying investments. During the eleven months ending May 31, 2013, unrestricted net assets of $330,000 were restored for gains related to the fiscal 2012 endowment fund deficiencies.
Endowment Investment Policy
The University has adopted an investment policy that is intended to provide a predictable stream of funding to programs from its endowment while seeking to maintain the purchasing power of the endowment assets. The University’s Endowment Fund (the Fund) consists of cash, securities, and other investments. The use of the assets of the Fund may be permanently restricted, temporarily restricted, or unrestricted. The Fund may receive donor- restricted, gifts and bequests to provide a permanent endowment, which is to provide a permanent source of income, or a term endowment, which is to provide income for a specified period. The principal of a permanent endowment must be maintained permanently and is classified as permanently restricted net assets. The principal of a term endowment must be maintained for a specified term and is classified as temporarily restricted net assets. The University’s Board of Trustees may earmark a portion of its unrestricted net assets as board-designated endowment to be invested to provide income for a long but unspecified period. The principal of a board-designated endowment, which results from an internal designation, is not donor restricted and is classified as unrestricted net assets.
The Board of Trustees has stipulated that all bequests to the University, not otherwise designated, will be added to the Fund.
18 Arcadia University Notes to Financial Statements May 31, 2013
Endowment Spending Policy
The University has adopted a spending policy seeking a total percentage return from assets. As defined under section 5548 (c) of the Pennsylvania Non-Profit Corporation law, the University will recognize as endowment income a seven percent return on assets based upon the three-year average market value of the Fund as of the close of the current fiscal year.
On an annual basis, the University will set a spending policy for budgeting purposes. The spending rate will be a percentage of assets based upon the three-year average fair value of the fund as of the close of the calendar year preceding its fiscal year. The spending rate should not exceed the recognized endowment income (7%). All returns, regardless of source, above the spending rate will be retained to enhance growth of the fund. For the eleven months ending May 31, 2013, the University recognized a five percent spending rate for budgeting purposes.
Strategies Employed for Achieving Objectives
To satisfy its goal of supporting the mission of the University through growth and by providing a predictable level of endowment income to the annual operating budget, rate-of- return objectives are to earn an average annual total real rate of return of at least five to six percent, as measured over a three-year to five-year market period, and to outperform selected weighted market indices. Funds are invested through active and passive fund managers with equity investments, fixed investments, which are predominately index funds, and alternative investments. Equity investments include common stocks, which are diversified in terms of industry, capital size, and nation of origin. Non-traditional investments include private equity, venture capital, and real estate. Fixed investments include cash, cash equivalents, and bonds. Cash and cash equivalents are maintained at a minimum to provide the Fund requisite liquidity. Target allocations for investments are 25% fixed income, 65% equity, and 10% non-traditional. Periodic re-balancing is to occur to maintain the target ranges. Investment returns are measured quarterly. Stock returns are compared against the Standard & Poor’s 500 Index and other standard equity indices. Bonds are evaluated using Barclay’s Capital Aggregate Bond Index and other standard fixed income indices. The total portfolio is compared to the consumer price index plus 5%.
19 Arcadia University Notes to Financial Statements May 31, 2013
Endowment Fund Activity
May 31, 2013 Temporarily Permanently Unrestricted Restricted Restricted Total
Donor restricted endowment funds $ - $ 1,821,000 $ 16,735,000 $ 18,556,000 Board-designated funds 40,670,000 - - 40,670,000
Total $ 40,670,000 $ 1,821,000 $ 16,735,000 $ 59,226,000
Net assets, beginning of year $ 35,348,000 $ 1,238,000 $ 16,356,000 $ 52,942,000
Investment return: Investment income 1,294,000 102,000 - 1,396,000 Net realized gains 379,000 - - 379,000 Net unrealized gains 4,748,000 1,374,000 113,000 6,235,000
Net investment gain 6,421,000 1,476,000 113,000 8,010,000
Contributions 406,000 - 266,000 672,000
Appropriation of endowment assets for operations (draw) (1,840,000) (558,000) - (2,398,000)
Transfer of net assets released from restrictions - income purpose satisfied 5,000 (5,000) - -
Other changes, Reclassification of underwater endowment net assets 330,000 (330,000) - -
Total other changes 330,000 (330,000) - -
Total $ 40,670,000 $ 1,821,000 $ 16,735,000 $ 59,226,000
20 Arcadia University Notes to Financial Statements May 31, 2013
11. Capital Projects
In May 2012, the University broke ground on a new parking garage at the Oak Summit Apartment complex. The garage is a bi-Ievel structure and is being built next to Building A. Funding for this project is coming from a combination of Montgomery County Higher Education and Health Authority Revenue Bonds, Series of 2010, and up to a $1,500,000 Redevelopment Assistance Capital Grant from the State of Pennsylvania. The parking garage was completed and brought online in March 2013.
In May 2012, the University began a project to expand and enhance Easton field. Turf was being laid on the field. Also, a pavilion with bathrooms as well as bleachers was being added. Funding for this project came from the Montgomery County Higher Education and Health Authority Revenue Bonds, Series of 2010. Both the Easton field and the pavilion were completed and brought online in December 2012.
There were no other major capital projects started or completed in the eleven months ending May 31, 2013.
12. Retirement Plan
All full-time employees of the University are eligible to participate in the University’s defined contribution retirement plan. Covered employees may choose between either Teachers Insurance and Annuity Association or the Vanguard Group as their plan trustee. The University’s matching contribution is 100% of the first 6.0% of employee contributions. Employee contributions of 6.5% and greater are matched by a University contribution of 8.0%. The plan is fully funded and the participants’ interest is fully vested. The University contributed $1,693,000 to the plans during the eleven months ended May 31, 2013.
13. Postretirement Medical Benefits
The University provides postretirement medical benefits to all employees who meet certain eligibility requirements. The University accrues for expected medical and other postretirement benefits over the years that the employees render the necessary service. Contributions to the plan are equal to benefit payments.
The University recognizes the funded status of its defined benefit postretirement plans in the statement of financial position. The University recorded deductions to net assets of $337,000 for the eleven months ending May 31, 2013.
21 Arcadia University Notes to Financial Statements May 31, 2013
Reconciliation of Benefit Obligation, Plan Assets and Funded Status
2013 (In Thousands)
Change in benefit obligation: Benefit obligation, beginning of year $ 8,969
Service cost 367 Interest cost 359 Actuarial loss (115) Benefits paid (259)
Benefit obligation, end of year $ 9,321
Change in plan assets: Fair value of plan assets, beginning of year $ -
Employer contribution 259 Benefits paid (259)
Fair value of plan assets, end of year $ -
2013 (In Thousands)
Funded status $ (9,321)
Accrued benefit cost $ (9,321)
Amounts Recognized in Accumulated Unrestricted Net Assets
2013 (In Thousands)
Net loss $ 4,852 Prior service credit (787)
Accrued benefit cost $ 4,065
22 Arcadia University Notes to Financial Statements May 31, 2013
Weighted Average Assumptions Used to Determine Benefit Obligations at Year-End
2013
Discount rate 4.50 % Medical cost trend: Increase from current to next fiscal year 7.00 % Ultimate rate of increase 5.00 % Fiscal year that the ultimate rate is attained 2018 Prescription drug cost trend: Increase from current to next fiscal year 7.00 % Ultimate rate of increase 5.00 % Fiscal year that the ultimate rate is attained 2018
Weighted-Average Assumptions Used to Determine Net Periodic Benefit Cost
2013
Discount rate 4.50 % Expected return on assets N/A Rate of compensation increases N/A Healthcare cost trend: Increase from current to next fiscal year 7.50 % Ultimate rate of increase 5.00 % Fiscal year that the ultimate rate is attained 2018 Prescription drug cost trend: Increase from current to next fiscal year 7.50 % Ultimate rate of increase 5.00 % Fiscal year that the ultimate rate is attained 2018
Net Periodic Postretirement Benefit Cost
2013 (In Thousands)
Service cost of benefits earned $ 367 Interest cost on accumulated postretirement benefit obligation 359 Amortization of prior service credit (191) Amortization of net actuarial loss 413
Net periodic postretirement benefit cost $ 948
23 Arcadia University Notes to Financial Statements May 31, 2013
Estimated Amounts to be Amortized from Accumulated Unrestricted Net Assets into Net Periodic Benefit Cost over the Next Fiscal Year
2013 (In Thousands)
Net loss $ 412 Prior service credit (208)
Estimated Future Benefit Payments
The benefit payments, which reflect expected future service, as appropriate, are expected to be paid as follows (in thousands):
2014 $ 306 2015 342 2016 378 2017 412 2018 452 2019-2023 2,760
Contributions expected to be paid to the plan in the next fiscal year $ 306
Healthcare Cost Trend Rate
Assumed medical cost trend rate for the next year 7.0% General description of the direction and pattern of change in -0.5% per year to 5%, then the assumed medical trend rates thereafter 5% thereafter Ultimate trend rate and when that rate is expected to be achieved 5% in fiscal 2018 Assumed prescription drug cost trend rate for the next year 7.0% General description of the direction and pattern of change in -0.5% per year to 5%, then the assumed medical trend rates thereafter 5% thereafter Ultimate trend rate and when that rate is expected to be achieved 5% in fiscal 2018 One percentage point increase: Effect on total service and interest cost $ 138 Effect on end of year postretirement benefit obligations $ 1,446 One percentage point decrease: Effect on total service and interest cost $ (111) Effect on end of year postretirement benefit obligations $ (1,193)
24 Arcadia University Notes to Financial Statements May 31, 2013
ASC 220-10 Disclosures for Change in Accumulated Unrestricted Net Assets
May 31, 2013 Amount (In Thousands)
Prior service cost from plan amendment during the yea $ - Less: amortizations of all prior service costs included in net periodic cost (191)
Net prior service cost arising during period (191)
Net loss arising during the year (115) Amortization of total loss included in periodic cost 413
Net loss arising during year (528)
Amortization of transition obligation (asset) -
Change in Accumulated Unrestricted Net Assets Reflected in Unrestricted Net Assets $ (337)
14. Fair Value Disclosure
Fair Value Measurements
The University has categorized its financial instruments, based on the priority of the inputs to the valuation technique, into a three-level fair value hierarchy. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the hierarchy are described below:
Level 1 - Financial assets and liabilities whose values are based on unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
25 Arcadia University Notes to Financial Statements May 31, 2013
Level 2 - Financial assets and liabilities whose values are based on one or more of the following:
1. Quoted prices for similar assets or liabilities in active markets;
2. Quoted prices for identical or similar assets or liabilities in non-active markets;
3. Pricing models whose inputs are observable for substantially the full term of the asset or liability; or
4. Pricing models whose inputs are derived principally from or corroborated by observable market data through correlation or other means for substantially the full term of the asset or liability.
Level 3 - Financial assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable. These inputs reflect management’s own assumptions about the assumptions a market participant would use in pricing the asset or liability.
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The University’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.
Both observable and unobservable inputs may be used to determine the fair value of positions that the University has classified within the Level 3 category. As a result, the unrealized gains and losses for assets and liabilities within the Level 3 category presented in the tables below may include changes in fair value that were attributable to both observable (e.g., changes in market interest rates) and unobservable (e.g., changes in unobservable long-dated volatilities) inputs.
A review of the fair value hierarchy classifications is conducted on an annual basis. Changes in the type of inputs may result in a reclassification for certain financial assets or liabilities. Reclassifications impacting Level 3 of the fair value hierarchy are reported as transfers in/out of the Level 3 category as of the beginning of the year in which reclassifications occur.
26 Arcadia University Notes to Financial Statements May 31, 2013
The following table presents information about the University’s assets and liabilities measured and disclosed at fair value as of May 31, 2013 and indicates the fair value hierarchy of the valuation techniques utilized by the University to determine such fair value.
May 31, 2013 Level 1 Level 2 Level 3 Total
Reported at Fair Value Equity funds: Large cap $ 14,652 $ - $ - $ 14,652 Small cap 3,524 - - 3,524 Mid cap 3,245 - - 3,245 International 10,120 - - 10,120
Total equity funds 31,541 - - 31,541
Fixed income funds, Intermediate term bonds 10,047 - - 10,047 Short term bonds 2,644 - - 2,644
Total fixed income funds 12,691 - - 12,691
Alternative investments: Private equity - - 1,865 1,865 Hedge - 3,880 - 3,880 Real Asset Strategies - 2,995 - 2,995 Natural Resources - - 945 945 Venture capital - - 1,143 1,143 Fixed income - - 1,207 1,207
Total alternative investments - 6,875 5,160 12,035
Forward foreign exchange contracts - (1,163) - (1,163) Other investments 740 - 1,744 2,484 Deposits with bond trustees 11,558 - - 11,558 Trust funds held by others - - 3,979 3,979
Total $ 56,530 $ 5,712 $ 10,883 $ 73,125
Disclosed at Fair Value Assets Cash and cash equivalents $ 14,008 $ - $ - $ 14,008 Restricted cash 1,673 - - 1,673 Contributions receivable, net - - 1,463 1,463 Student loans receivable, net - 5,416 - 5,416
Liabilities Line of credit $ - $ 1,500 $ - $ 1,500 Long-term debt (carrying value of $77,840) - 75,789 - 75,789 Annuities payable - - 248 248 Refundable loan funds - 773 - 773
27 Arcadia University Notes to Financial Statements May 31, 2013
The following table presents a reconciliation of the beginning and ending balances of assets with fair value measurements using significant unobservable inputs (Level 3) as of May 31, 2013:
2013 (In Thousands)
Balance, beginning $ 9,117 Purchases 327 Distributions (255) Realized and unrealized gains 1,694
Balance, ending $ 10,883
The University has a policy which permits investments that do not have a readily determinable fair value, and as such, has elected to use the net asset value per share (the “NAV”) as calculated on the reporting entity’s measurement date as the fair value of the investment. The University measures the fair value of an investment that does not have a readily determinable fair value, based on the NAV of the investment as a practical expedient, without further adjustment, unless it is probable that the investment will be sold at a value significantly different than the NAV. If the practical expedient NAV is not as of the reporting entity’s measurement date, then the NAV is adjusted to reflect any significant events that would materially affect the value of the security and the NAV of the University as of the valuation date. In using the NAV as a practical expedient, certain attributes of the investment, that may impact the fair value of the investment, are not considered in measuring fair value. Attributes of those investments include the investment strategies of the investees and may also include, but are not limited to, restrictions on the investor’s ability to redeem its investments at the measurement date at NAV as well as any unfunded commitments. A listing of the investments held by the University and their attributes, that may qualify for these valuations consist of the following as of May 31:
2013 Unfunded Redemption Investment Investment Fair Value Commitments Redemption Notice Category Strategy (Thousands) (Thousands) Frequency Period
Hedged equity Funds are designed to offer $ 3,880 N/A Quarterly income N/A investors access to a distributions. diversified hedged equity investment program with less volatility than the S&P 500 over a market cycle. The funds allocate assets to sub- advisers with a primary focus on selection of long and short positions in equity securities that are primarily, but not exclusively, marketable securities issues by U.S. companies.
28 Arcadia University Notes to Financial Statements May 31, 2013
2013 Unfunded Redemption Investment Investment Fair Value Commitments Redemption Notice Category Strategy (Thousands) (Thousands) Frequency Period
Natural resources Investment of funds in 945 $ 359 Quarterly income N/A limited partnerships, distributions. which in turn, make oil, gas, timber and other natural resource-related investments with the objective of obtaining long-term growth of capital. Real Asset Strategy Investment of emerging 2,995 N/A Quarterly income N/A market bonds, emerging distributions market equities, high yield market bonds, equities and commodities in the energy and precious metals sectors with objective to provide returns and hedge against inflation
Venture capital Invests primarily in other 1,143 108 Quarterly income N/A limited partnerships distributions. formed for the purpose of making venture capital investments in emerging growth companies. Generally, these investments may not be transferred or withdrawn prior to the termination of limited partnerships, which generally have a term of ten years.
Private equity Invests primarily in other $ 1,865 $ 304 Quarterly income Up to 90 days limited partnerships distributions. formed for the purpose of making investments in equity securities, warrants or other options, focused either domestically or internationally, that are generally not actively traded at the time of investment. Generally, these investments may not be transferred or withdrawn prior to the termination of limited partnerships, which generally have a term of ten years.
29 Arcadia University Notes to Financial Statements May 31, 2013
2013 Unfunded Redemption Investment Investment Fair Value Commitments Redemption Notice Category Strategy (Thousands) (Thousands) Frequency Period
Fixed income Invests in partnerships 1,207 162 Quarterly income Up to 90 days offered by top-tier distributions. distressed debt managers. The partnerships focus primarily on investments in securities and other obligations of distressed businesses and financially troubled companies that are priced at significant discounts to their original value.
The following provides a brief description of the types of financial instruments the University holds, the methodology for estimating fair value, and the level within the hierarchy of the estimate.
A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.
Equity Funds: These are securities which are traded on a recognized liquid exchange. The closing price of the security as of the reporting date is used to determine fair value. This is considered a Level 1 input in the hierarchy.
Fixed Income Funds: Fixed income investments include cash, cash equivalents, and bonds. They are traded in active markets and values are based on unadjusted quoted prices. They are considered a Level 1 input in the hierarchy.
Alternative Investments: Alternative investments include real estate, venture capital, hedge funds, real return asset funds, domestic and international private equity, distressed debt, commodities, and natural resources. Fair values of investments within Level 2 are valued at the respective net asset values of the underlying investments. Certain other investments valued at net asset value are considered Level 3 inputs in the hierarchy based on the investments not having an observable market and the need for significant estimation to measure fair value.
Other Investments: Other investments include split-interest investments and a mutual fund. These are traded in active markets with fair values determined either at the closing price of the reporting date or unadjusted quoted prices. These are considered a Level 1 input in the hierarchy. Also included in other investments is the University’s 50% investment in the Alliance for Global Education (Note 18), a limited liability corporation that provides study-abroad programs in Asia and an investment in a private company. These investments are considered a Level 3 input in the hierarchy.
30 Arcadia University Notes to Financial Statements May 31, 2013
Forward Foreign Exchange Contracts: These are contracts entered into 15 to 18 months in advance for operating expenditures in the University’s overseas programs. Fair value is based on closing currency exchange rates as of the reporting date. These are considered a Level 2 input in the hierarchy.
Trust Funds Held By Others: These funds are neither in the possession, nor under the control, of the University. Such terms provide that the University is to receive a certain percentage of the income earned by the funds which are held in trust. Because of the permanent right of the University to its share of the trusts’ earnings, the University reports its share of these trusts as trust funds held by others. These are considered a Level 3 input in the hierarchy.
Cash, Cash Equivalents and Restricted Cash: These financial instruments approximate fair value due to their short-term maturity. These are considered Level 1 measurements due to their liquidity.
Contributions Receivable: Fair value is considered to approximate its carrying value estimated based on future cash flows discounted at risk adjusted rates ranging from 2% to 4% which are considered to be Level 3 inputs.
Annuities Payable: The fair value is considered to approximate its carrying value based on discounted cash flows using market rates which are considered to be Level 3 inputs.
Loans Receivable, Net and Refundable Loan Funds: The carrying amounts of these financial instruments approximate the fair value. The fair value of these loans receivable and advances from the federal government are based upon management’s best estimate of the indicated future cash flows discounted at interest rates required by market participants, which are considered to be Level 2 measurements.
Long-Term Debt and Line of Credit: The estimated fair value is based on quoted market prices for the same or similar issues with similar security terms and maturities which are considered to be Level 2 measurements.
15. Lease Commitments
Capital Lease Obligations
The University leases certain equipment under the terms of lease agreements that have been classified as capital leases. The following summarizes the changes in capital lease obligations in 2013 (in thousands):
Balance, June 30, 2012 $ 121 Additions 43 Payments (75)
Balance, May 31, 2013 $ 89
31 Arcadia University Notes to Financial Statements May 31, 2013
The following is a schedule of future minimum lease payments under these leases, together with the present value of the net minimum lease payments as of June 30, 2012:
Years ending May 31: 2014 $ 39 2015 32 2016 22 2017 3
Total minimum lease payments 96
Less amount representing interest 7
Present value of net minimum lease payments $ 89
Interest expense on capital leases was $24,000 for the eleven months ending May 31, 2013.
Operating Leases
The University has several operating leases for office space and athletic fields. These leases range from one to five years. The College of Global Studies also leases certain overseas properties as offices and student accommodations. These leases have original terms ranging from three months to ten years, and are also accounted for as operating leases. In the normal course of business, most operating leases are renewed or replaced by other leases. Rent expense was $1,668,000 for the eleven months ended May 31, 2013. Aggregate future minimum lease payments under operating leases subsequent to May 31, 2013 are as follows (in thousands):
Years ending May 31:
2014 $ 1,707 2015 1,470 2016 1,239 2017 1,203 2018 775 Thereafter 4,301
Total $ 10,695
32 Arcadia University Notes to Financial Statements May 31, 2013
16. Related Party Transactions
During the eleven months ending May 31, 2013, the University entered into certain transactions at arm’s length (unaudited) with certain Board of Trustee members for the rendering of professional services. The total of these expenditures, related to a professional graduate academic program, for the eleven months ending May 31, 2013 was approximately $421,000. The University has an investment in a private company totaling approximately $1,298,000 in which a member of the Board of Trustees is a shareholder/director.
17. College of Global Studies
The College of Global Studies (“TCGS”) was originally founded in 1965 as a program to facilitate overseas study by Arcadia University undergraduates. TCGS has grown in 45 years to become one of the largest study abroad providers in the nation, sending over 2,750 students from over 350 home institutions to more than 100 programs in 15 foreign countries. The University bills the students, collects the receipts and pays the students’ tuition, housing, and other program costs.
33 Arcadia University Notes to Financial Statements May 31, 2013
The results from TCGS’s operations and foreign currency gains and losses for the eleven months ended May 31, is as follows:
2013 Unrestricted (In Thousands)
Revenues: Programs in the England/Wales $ 14,048 Programs in Scotland 4,265 Programs in Ireland 5,497 Programs in Spain 1,893 Programs in Italy 4,232 Programs in Greece 450 Programs in Australia 5,628 Programs in New Zealand 1,976 Programs in other countries 1,674 Programs in summer 3,222 Program Scholarships (626) Investment income 46 Endowment income 405 Other income 149
Total revenues 42,859
Expenses: Programs in the England/Wales 9,673 Programs in Scotland 3,092 Programs in Ireland 3,638 Programs in Spain 1,454 Programs in Italy 3,064 Programs in Greece 748 Programs in Australia 3,852 Programs in New Zealand 1,370 Programs in other countries 1,198 Programs in summer 1,747 General and administrative 9,496
Total expenses 39,332
Net gain from operating activities before effect of foreign currency exchange and valuation gain 3,527
Foreign currency exchange and valuation loss (765)
Total $ 2,762
34 Arcadia University Notes to Financial Statements May 31, 2013
Foreign currency exchange and valuation gains result from accounting for foreign expenditures at average monthly exchange rates versus purchases of foreign currency at future dates and the valuation of foreign assets in U.S. dollars at year end.
As of May 31, 2013, the University held approximately $4,120,000 of foreign currencies to support the Center’s foreign operations.
The University uses forward foreign exchange contracts in order to protect against (hedge) future foreign exchange transaction losses.
18. Alliance for Global Education
The Alliance for Global Education (“AGE”) is a limited liability corporation of Arcadia University’s College of Global Studies and the Institute for Study Abroad at Butler University formed in 2006. AGE was formed with a vision of opening non-traditional study abroad destinations in Asia to undergraduate students in the United States. It allows for the sharing of start up costs and joint marketing of programs in locations that would financially challenge one partner acting alone.
The University holds a 50% investment in AGE. The University’s share of member equity is recorded in investments on the statement of financial position. At May 31, 2013, a receivable from AGE to the University in the amount of $37,000, was recorded in inventories, prepaid expenses and other assets on the statement of financial position for expenses paid by the University incurred on behalf of AGE.
35 Arcadia University Notes to Financial Statements May 31, 2013
During the eleven months ending May 31, 2013, AGE sent 434 students to four program locations in China and three program locations in India. The results from AGE’s operations for the eleven months ended May 31, 2013 are as follows:
For the Period Ended May 31, 2013 (Unaudited) (In Thousands)
Revenues: Program revenue: Fudan University $ 727 Shanghai University of Finance and Economics 1,264 Beijing Language and Culture University 716 Xi’an-Shaanxi Normal University 494 Manipal-Public Health and Indian Studies 313 Varanasi-The City, River, Sacred 246 Pune-Contemporary India 1,047
Total program revenue 4,807
Less scholarships and allowances (144)
Net program revenues 4,663
Other income 12
Total revenue 4,675
Expenses: Program expenses: Fudan University 537 Shanghai University of Finance and Economics 688 Beijing Language and Culture University 430 Xi’an-Shaanxi Normal University 310 Manipal-Public Health and Indian Studies 245 Varanasi-The City, River, Sacred 153 Pune-Contemporary India 317
Total program expenses 2,680
General and administrative 1,352
Total expenses 4,032
Net increase for the eleven months ending May 31, 2013 643
Member equity beginning of period 248
Member equity end of the period $ 891
36 Arcadia University Notes to Financial Statements May 31, 2013
19. Contingencies
The nature of the educational industry is such that, from time to time, claims will be presented against the University on account of alleged negligence, acts of discrimination, breach of contract, or disagreements arising from the interpretation of laws and regulations. While some of these claims may be for substantial amounts, they are not unusual in the ordinary course of providing educational services. Management of the University believes that these claims and their resolution will not have a significant impact on the University’s financial position.
20. Change in Net Assets for the Twelve Month Period Ending Jun 30, 2013 (Unaudited)
In October 2012, the Board of Trustees approved a change in the fiscal year end of the University from June 30 to May 31. Below represents unaudited operating and change in net assets results for the twelve month period ending June 30, 2013:
June 30
Unrestricted Net Assets
Arcadia University Operations Student related revenue Gross student tuition and fees $ 99,184 Less: Financial assistance (37,327) Net student tuition and fees 61,857 Sales and service of auxiliary enterprises 11,927 73,784 Private gifts and grants 1,166 Government grants 1,017 Endowment income 1,567 Investment income 95 Other sources 283 Net assets released from restrictions 1,193
Total operating revenues 79,105
Operating expenses Instruction 33,848 Academic support 8,027 Student services 14,365 Institutional support 12,694 Auxiliary enterprises 11,987
Total operating expenses 80,921
Change in net assets (1,816)
37 Arcadia University Notes to Financial Statements May 31, 2013
The College of Global Studies Gross operating revenues $ 44,320 Less: Financial assistance (625) Net operating revenues 43,695 Operating expenses 42,202 Change in net assets 1,493 Change in net assets from operating activities (323)
Non-Operating Activities Change in market value of future foreign exchange contracts 219 Change in market value of investments 4,429 Change in benefit obligation 337
Change in net assets from non-operating activities 4,985
Total change in unrestricted net assets 4,661 Unrestricted Net Assets, Beginning of Year 76,952
Unrestricted net assets at end of year $ 81,613
Temporarily Restricted Net Assets Total change in temporarily restricted net assets 3,088 Beginning of year 5,651 Temporarily restricted net assets at end of year $ 8,739
Permanently Restricted Net Assets Total change in permanently restricted net assets 2,018 Beginning of year 16,356 Total $ 18,374
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APPENDIX C
SUMMARY OF LEGAL DOCUMENTS
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SUMMARY OF LEGAL DOCUMENTS
The following are definitions of certain terms used in, and summaries of certain provisions of, the Series 2016 Indenture, the Series 2016 Loan Agreement and the Intercreditor Agreement. The summaries set forth below should not be regarded as full statements of the documents themselves, or of the portions summarized. Reference is made to the documents in their entireties for the complete statements of the provisions thereof. Copies of the Series 2016 Indenture, Series 2016 Loan Agreement and the Intercreditor Agreement will be on file at the principal corporate trust office of the Trustee.
The principal terms of the Series 2016 Bonds, including provisions for payment and redemption are described under the description of “THE SERIES 2016 BONDS” in the front portion of this Official Statement. Certain additional terms used herein are defined in the front portion of this Official Statement.
DEFINITIONS OF CERTAIN TERMS
“Accountant” means a Person, who shall be Independent, appointed by the University, actively engaged in the business of public accounting and duly certified as a certified public accountant under the laws of the Commonwealth.
“Act” means the Pennsylvania Municipality Authorities Act, 53 Pa. C.S.A. § 5601 et seq., as amended and supplemented.
“Administrative Expenses” means those expenses reasonably and properly incurred by the Authority in carrying out its responsibilities and duties, or in providing its services and facilities to the University in connection with the undertaking of the 2016 Project and the issuance of the Series 2016 Bonds, under the Act or in accordance with or pursuant to the Series 2016 Indenture or the Series 2016 Loan Agreement.
“Authority” means the Montgomery County Higher Education and Health Authority.
“Authority Board” means the governing body of the Authority.
“Authorized Denominations” means $5,000 or any integral multiple thereof.
“Authorized Officer of the Authority” means any of the Chairman, Vice Chairman, Treasurer or Secretary of the Authority or any other person authorized by resolution of the Authority, a certified copy of which has been delivered to the Trustee, to perform any such act or execute such document.
“Authorized Officer of the University” means the President and the Chief Financial Officer and the Treasurer, respectively, of the University and, with respect to any particular act or documents, any other person authorized by resolution of the Board of Trustees (or an authorized committee thereof) of the University, a certified copy of which has been delivered to the Trustee or any person designated to act on behalf of the University by the Board of Trustees (or an authorized committee thereof) of the University, as evidenced by a written certificate furnished to the Trustee containing the specimen signature of such person and signed on behalf
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of the University by its Secretary or Assistant Secretary, Such resolutions and certificates may designate more than one person, each of whom shall be entitled to perform all duties of the Authorized Officer of the University.
“Bond Counsel” means an attorney or firm of attorneys, selected by the University, having favorable skill and reputation and who shall be nationally recognized as having expertise in tax-exempt and governmental financings, including financings by or on behalf of nonprofit corporations.
“Bond Register” means a register, to be kept by the Trustee, subject to such reasonable regulations as it may prescribe, in which the Authority shall provide for the registration and the transfer of Series 2016 Bonds.
“Book-Entry Bonds” means all Series 2016 Bonds for which the Securities Depository or its nominee is the Holder.
“Business Day” means any day other than a Saturday, Sunday or other day on which banks in New York, New York, or the Designated Office of the Trustee or Payment Office of the Trustee or paying agent are required or permitted by law or executive order to close or the New York Stock Exchange is closed.
“Capital Lease” means any lease, installment sale or other title retention agreement with respect to property of the University which is the substantial equivalent of Long-Term Debt under Generally Accepted Accounting Principles as generally applied to the University’s financial statements for its Fiscal Years ended on and prior to May 31, 2015.
“Certificate” means a written statement signed by or on behalf of the Person charged with responsibility therefor.
“Certified Authority Resolution” means a copy of one or more resolutions certified by the Secretary or Assistant Secretary of the Authority, under its seal, to have been duly adopted by the Authority Board and to be in effect on the date of such certification.
“Clearing Fund” means a special fund established by the Trustee under the Series 2016 Indenture into which there shall be deposited the proceeds of the sale of the Series 2016 Bonds.
“Closing Statement” means the closing statement delivered at the time of settlement of the Series 2016 Bonds, signed on behalf of the Authority and approved by the University, specifying the deposits to be made with the proceeds of the Series 2016 Bonds and the payments to be made with such proceeds, including the Persons to which each payment is to be made and the amount of each such payment.
“Code” means the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder.
“Collateral Agent” means The Bank of New York Mellon Trust Company, N.A., as the Indenture Trustee, acting in the capacity of collateral agent for the benefit of each Parity Secured Party under the Intercreditor Agreement.
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“Consultant” means a Person, who shall be Independent, appointed by the University and not unsatisfactory to the Trustee, who is generally recognized as being expert as to matters as to which his or its certificate or advice is required or contemplated hereby.
“Counsel” means an attorney-at-law or law firm (which may be counsel to the Authority, the University, the Trustee or any other applicable party) admitted to practice before the highest court of any state (or the District of Columbia) and not unsatisfactory to the Authority or the Trustee.
“Commonwealth” means the Commonwealth of Pennsylvania.
“Debt Service Requirements,” with reference to a specified period, means:
(a) interest payable on Long-Term Debt during the period, excluding (i) interest funded from the proceeds thereof and (ii) interest on Long-Term Debt to be redeemed during such period through any sinking fund account which would otherwise accrue after the redemption date;
(b) amounts required to be paid into any mandatory sinking fund account for Long- Term Debt during the period;
(c) amounts required to pay the principal of Long-Term Debt maturing during the period and not to be redeemed prior to maturity through any mandatory sinking fund account; and
(d) lease rentals payable during such period under any Capital Lease.
“Designated Office” means, with respect to the Trustee, the office specified in the Series 2016 Indenture, or such other address as may be specified in writing by the Trustee, for purpose of notices to be given and actions to be taken under the Series 2016 Indenture.
“DTC” means The Depository Trust Company, a limited-purpose trust company organized under the New York Banking Law, and any successor company. References to the DTC herein may include, as the context may require, its nominee, Cede & Co.
“Eastern Time” means the time given on any given day in Eastern Standard Time or Eastern Daylight Savings Time, as applicable.
“Event of Default” means: (i) with respect to the Series 2016 Indenture, any of the events described under “THE SERIES 2016 BOND INDENTURE – Defaults and Remedies” herein; (ii) with respect to the Series 2016 Loan Agreement, any of the events described under “THE SERIES 2016 LOAN AGREEMENT – Events of Default and Remedies” herein; and (iii) when used in the Intercreditor Agreement, any “Event of Default” as defined in the Series 2016 Loan Agreement or in any other Parity Debt Agreement that gives rise to the obligation of the University to turn over to and deposit with the Collateral Agent under the Intercreditor Agreement any or all of the Pledged University Revenues.
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“Favorable Opinion of Bond Counsel” means a written opinion of Bond Counsel to the effect that the facts or circumstances in question (i) are authorized under the Series 2016 Indenture, the Series 2016 Loan Agreement and the Act, and (ii) will not in and of itself adversely affect the validity of the Series 2016 Bonds or the exclusion from gross income for federal tax purposes of the interest on the Series 2016 Bonds.
“Fiscal Year” when used with respect to the University, means the period of twelve months beginning June 1 of each year unless and until a different Fiscal Year is adopted by the University and written notice thereof given to the Trustee.
“Fund” means any fund established under the Indenture for the deposit of money received by the Trustee.
“Generally Accepted Accounting Principles” means those accounting principles, not contrary to those promulgated by a nationally recognized financial standards body, applicable in the preparation of financial statements of institutions of higher learning, as currently in effect or as may be modified, from time to time, in the future.
“Government Obligations” means (1) direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the United States of America, or (2) evidences of ownership in specified direct obligations of, or obligations the principal of and interest on which is unconditionally guaranteed by, the United States of America, which obligations are held by a bank or trust company organized under the laws of the United States of America or any state thereof as custodian.
“Hedge Agreement” means an agreement providing for any interest rate swap, cap, floor, futures contract or a similar financial product incurred for the purpose of limiting interest rate risk with respect to specific Long Term Debt which is proposed to be incurred or which is then Outstanding,
“Holder” means the Person or Persons in whose name or names a Series 2016 Bond is registered on the Bond Register of the Authority kept for that purpose in accordance with the Series 2016 Indenture and the Series 2016 Bonds.
“Indebtedness” means all obligations for the payment of borrowed money, incurred, assumed or guaranteed by the University, whether due and payable in all events, or upon the performance of work, the possession of property as lessee or the rendering of services by others, but shall not, in any event, include, the following:
(a) current obligations payable out of current revenues, including current payments for the funding of pension or other post-retirement benefits;
(b) obligations under contracts for supplies, services, pensions or other post- retirement benefits allocable to current operating expenses of future years in which the supplies are to be furnished, the services rendered, or the pensions or other post-retirement benefits paid;
(c) obligations under agreements with donor with respect to charitable gift annuities;
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(d) rentals payable in future years under any leasing arrangement other than a Capital Lease;
(e) contingent obligations with respect to letters of credit, lines of credit or other third-party commitments securing or providing for payment of all or any portion of the University’s outstanding Indebtedness;
(f) obligations under contracts to purchase foreign currency; and
(g) Student Loan Guarantees complying with the provisions described herein under “THE SERIES 2016 LOAN AGREEMENT – Student Loan Guarantees,” except to the extent includable as Long-Term Debt under the provisions thereof.
“Indenture Trustee” means The Bank of New York Mellon Trust Company, N.A., as successor trustee under the Prior Bond Indenture.
“Intercreditor Agreement” means the Intercreditor Agreement dated as of February 1, 2006, by and among the University, The Bank of New York Mellon Trust Company, N.A., as collateral agent, as supplemented by the Supplement to Intercreditor Agreement, dated as of May 1, 2010, the Second Supplement to Intercreditor Agreement, dated as of December 1, 2013, the Third Supplement to Intercreditor Agreement, dated as of June 1, 2015, and by the Fourth Supplement to the Intercreditor Agreement, dated as of January 1, 2016, as the same may be further supplemented from time to time.
“Independent” means with respect to the Accountant and any other Consultant, a Person who is not a member of the University Board (or other University governing body) or the Authority Board, an officer or employee of the Authority or an officer or employee of the University, or which is not a partnership, corporation or association having a partner, director, officer, member or substantial stockholder who is a member of the University Board or the Authority Board, an officer or employee of the Authority or an officer or employee of the University; provided, however, that the fact that such Person is retained regularly by or transacts business with the University shall not make such Person an employee within the meaning of this definition.
“Loan Payments” means all amounts payable by the University to the Authority (except those representing the Administrative Expenses of the Authority) or to the Trustee, as the assignee of the Authority’s interests in the Series 2016 Loan Agreement, under the Series 2016 Loan Agreement.
“Long-Term Debt” means all Indebtedness other than Short Term Debt.
“Maximum Annual Debt Service Requirements” means the highest annual Debt Service Requirements with respect to the outstanding Long-Term Debt of the University in the current or any succeeding Fiscal Year of the University.
“Net Revenues” means such revenues, income and other moneys (both operating and non-operating) received by the University that would properly be recorded as additions to Unrestricted Net Assets during the period being measured; provided that, for purposes of this
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definition, in each context involving measuring coverage for purposes of a financial covenant, an amount equal to the budgeted unrestricted investment earnings (realized and unrealized gains and income) of the University pursuant to the University’s investment spending formula as determined by the Board of the University for such Fiscal Year shall be included and the balance of realized and unrealized gains or losses and any income earned on such investments shall be excluded, or the equivalent as estimated by the University, if the University’s accounting presentation format changes materially in the future.
“Non-Recourse Debt” means any Indebtedness secured by a lien on any property, (i) which is not a general obligation of the University, and (ii) the liability for which is effectively limited to the property subject to such lien and the revenues therefrom, with no recourse, directly or indirectly, to any other property.
“Outstanding,” means
(a) with respect to the Series 2016 Bonds, all Series 2016 Bonds authenticated and delivered under the Series 2016 Indenture except:
(i) Series 2016 Bonds theretofore cancelled or required to be cancelled under the Series 2016 Indenture;
(ii) Series 2016 Bonds deemed to have been paid in accordance with Series 2016 Indenture; or
(iii) Series 2016 Bonds in exchange for which other Series 2016 Bonds have been authenticated and delivered pursuant to the Series 2016 Indenture, and
(b) as used in connection with any Long-Term Debt, as of the time in question, all such Long-Term Debt issued under the particular debt-incurring instrument except such thereof as:
(i) is cancelled or required to be cancelled under the terms of the debt- incurring instrument;
(ii) for the payment, redemption, or purchase of which moneys or Government Obligations or (the principal of and interest on which Government Obligations, when due, will provide sufficient money to fully pay such Long-Term Debt or portion thereof in accordance with the debt-incurring instrument) shall have been or shall concurrently be deposited with the Trustee, the oblige or trustee under any debt-incurring instrument or an escrow agent appointed for such purpose; provided that, if such Long-Term Debt is being redeemed, the required notice of redemption shall have been given or provision satisfactory to the Trustee or other appropriate party shall have been made therefor, and that if such Long-Term Debt, or any part thereof, is being purchased, there shall be a firm commitment for the purchase and sale thereof; or
(iii) in substitution for which other Long-Term Debt has been authenticated and delivered pursuant to the debt-incurring instrument.
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“Parity Debt Agreement” means each of the Series 2010 Loan Agreement, the Series 2013 Loan Agreement (as such terms are defined in the Intercreditor Agreement), the Series 2015 Loan Agreement and the Series 2016 Loan Agreement, together with each other instrument or agreement evidencing indebtedness of the University identified as an additional Parity Debt Agreement in any Supplement to the Intercreditor Agreement entered into for the purpose of identifying the indebtedness evidenced thereby as additional Parity Indebtedness of the University.
“Parity Indebtedness” means any Long-Term Debt of the University (including Long- Term Debt incurred under the Series 2016 Loan Agreement) secured by a lien on and security interest in the Pledged University Revenues of the University of equal rank and priority with all liens now or hereafter granted in the Pledged University Revenues under the Series 2016 Loan Agreement or otherwise incurred in accordance with the Series 2016 Loan Agreement, and shall include the University’s obligations under the Prior Bond Agreements, all as provided in the Intercreditor Agreement.
“Parity Secured Party” means each of: (i) the Trustee (as assignee of the Authority) in respect of the obligations of the University under the Series 2010 Loan Agreement, the Series 2013 Loan Agreement, the Series 2015 Loan Agreement and the Series 2016 Loan Agreement, respectively; and (ii) each holder of additional Parity Indebtedness identified as an additional Parity Secured Party in any Supplement to the Intercreditor Agreement entering into for the purpose of identifying the indebtedness evidenced thereby as additional Parity Indebtedness of the University.
“Permitted Encumbrances” means, with respect to the Pledged University Revenues and the University Facilities as of any particular time:
(a) each pledge and assignment of, and security interest in, the Pledged University Revenues securing Parity Indebtedness as currently existing or hereafter created as permitted under the Series 2016 Loan Agreement;
(b) liens for ad valorem taxes, special assessments and other governmental charges not then delinquent;
(c) utility, access or other easements, licenses and rights-of-way, mineral rights, restrictions and exceptions of record, none of which will materially interfere with or impair the ability of the University to meet its payment obligations under the Series 2016 Loan Agreement;
(d) transfers, liens and security interests permitted under the provisions of the Series 2016 Loan Agreement;
(e) such minor defects, encroachments, irregularities, easements, rights-of-way and clouds on title as normally exist with respect to properties similar in character to the University Facilities and do not in the aggregate materially and adversely impair the ability of the University to meet its payment obligations under the Series 2016 Loan Agreement;
(f) liens and judgments of record against the University Facilities the validity of which is being contested in good faith and by appropriate proceedings and which otherwise do
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not in the aggregate materially and adversely impair the ability of the University to meet its payment obligations under the Series 2016 Loan Agreement, provided that neither the University Facilities nor any rent or income therefrom or interest therein would be in any immediate danger of being sold, forfeited, attached or lost; and
(g) other agreements affecting the use of the University Facilities or any portion thereof provided that such agreements do not materially and adversely affect the ability of the University to carry out its educational purposes.
“Person” means an individual, a corporation, a partnership, an association, limited liability company, a joint stock company, a trust, an unincorporated organization, a governmental body, any other political subdivision, municipality or municipal authority or any other group or entity.
“Pledged University Revenues” means all receipts, revenues, income and other money received by the University from any source and all rights to receive the same (including without limitation, tuition and fee revenues, dormitory and dining revenues, and other operating revenues and non-operating revenues determined in accordance with Generally Accepted Accounting Principles), whether in the form of accounts receivable, contract rights, chattel paper, instruments or other rights, and the proceeds thereof, and any insurance thereon, whether now existing or hereafter coming into existence and whether now owned or held or hereafter acquired by the University; provided, however, that gifts, grants, bequests, donations and contributions heretofore or hereafter made, designated at the time of making thereof by the donor or maker as being for certain specific purposes, and the income derived therefrom, to the extent required by such designation, shall be excluded from Pledged University Revenues.
“Prior Bond Agreement” means collectively, (i) the Series 2010 Loan and Security Agreement dated as of May 1, 2010, between the Authority and the University pursuant to which the Authority loaned to the University the proceeds of its Arcadia University Revenue Bonds, Series of 2010; (ii) the Series 2013 Loan and Security Agreement, dated as of December 1, 2013, between the Authority and the University, pursuant to which the Authority loaned to the University the proceeds of its Arcadia University Revenue Bonds, Series of 2013; and (iii) the Series 2015 Loan and Security Agreement, dated as of June 1, 2015, pursuant to which the Authority loaned to the University the proceeds of its Arcadia University Revenue Bonds, Series of 2015.
“Prior Bond Indenture” means the Trust Indenture dated October 1, 1991, as heretofore and hereafter amended and supplemented, by and between the Authority and The Bank of New York Mellon Trust Company, N.A., as successor trustee.
“Project Facilities” means the land, buildings, acquisition, construction, renovation and/or improvements, equipment and other property of the University the acquisition and/or construction of which is to be financed or refinanced with the proceeds of the Series 2016 Bonds as part of the 2016 Project.
“Qualified Investments” means and include any of the following securities, if and to the extent the same are at the time legal for investment of Authority funds:
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(a) Government Obligations;
(b) Bonds, debentures, notes or other evidences of indebtedness issued by any of the following agencies or such other like governmental or government-sponsored agencies which may be hereinafter created: Bank for Cooperatives; Federal Intermediate Credit Banks; Federal Financing Bank; Federal Home Loan Bank System; Export Import Bank of the United States; Farmers Home Administration; Small Business Administration; Inter-American Development Bank; International Bank for Reconstruction and Development; Federal Land Banks; the Federal National Mortgage Association; the Government National Mortgage Association; or the Tennessee Valley Authority;
(c) Debt obligations of any state of the United States or any political subdivision of any state, or of any agency or instrumentality of any state or of any political subdivision thereof, if at the time of their purchase such obligations are rated at the time of investment in any of the two highest Rating Categories by any Rating Agency;
(d) Negotiable or non-negotiable certificates of deposit, including those placed by a third party pursuant to an agreement between the Trustee and the University, time deposits, bank deposit products, demand deposits, including interest bearing money market accounts, trust funds, trust accounts, bankers acceptances or other similar banking arrangements, issued by any bank or trust company (including the Trustee and its affiliates) the deposits of which to the extent uninsured, by the Federal Deposit Insurance Corporation, are to be secured as to principal by the securities in subsections (i), (ii), or (iii) above;
(e) Repurchase agreements or similar arrangements: (x) with any banking institutions or other financial services company, including the Trustee and its affiliates if applicable, having or the parent company of which shall be rated at the time of investment in any of the two highest Rating Categories by any Rating Agency, pursuant to which there shall have been delivered to the Trustee, or its designee, Qualified Investments of the types set forth in subsections (i) and/or (ii) above having at all times a fair market value of at least 100% of the value of such agreement; or (y) with any banking institutions or other financial services company, including the Trustee and its affiliates if applicable, not meeting the rating requirements of (x) above pursuant to which there shall have been delivered to the Trustee or its designee, Qualified Investments of the types set forth in subsections (i) and/or (ii) above and at all times having a fair market value of at least 102% of the value of such agreement;
(f) Shares of an open-end, diversified investment company which is registered under the Investment Company Act of 1940, including shares of any fund underwritten by the Trustee or any affiliate of the Trustee or for which the Trustee or any affiliate of the Trustee serves as investment manager, administrator, shareholder servicing agent, and/or custodian or subcustodian, notwithstanding that (x) the Trustee or an affiliate of the Trustee receives fees from such funds for services rendered, (y) the Trustee charges and collects fees for services rendered pursuant to this Series 2016 Indenture, which fees are separate from the fees received from such funds, and (z) services performed for such funds and pursuant to this Series 2016 Indenture may at times duplicate those provided to such funds by the Trustee or its affiliates, and which (a) invests exclusively in Qualified Investments of the types set forth in subsections (i), (ii), (iii) or (iv) above, (b) seeks to maintain a constant net asset value per share in accordance
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with regulations of the Securities and Exchange Commission, and (c) has aggregate net assets of not less than $10,000,000 on the date of purchase;
(g) Redeemable securities of a “unit investment trust” as defined in the Investment Company Act of 1940, as amended, each of which represents an undivided interest in a unit of specified Qualified Investments of the types set forth in paragraphs (a), (b) or (c) above;
(h) Commercial paper rated at the time of investment in the highest Rating Category by any Rating Agency, and having a maturity at the time of purchase not to exceed six months; and
(i) guaranteed investment contracts with any bank or investment banking firm or other financial services company the long term debt of which is rated at the time of investment in any of the two highest Rating Categories by any Rating Agency.
“Rating Agency” means each of the following: (a) Moody’s Investors Service; (b) Standard & Poor’s Ratings Group, a division of the McGraw Hill Companies, Inc.; (c) Fitch Ratings; and (d) if any of the foregoing shall not, at the particular time, provide rating services, any nationally recognized rating agency designated in writing by the University to the Trustee.
“Rating Category” means any of the principal rating categories assigned to investment securities or credit facilities by any Rating Agency, without regard to any gradation or distinction within any Rating Category (such as may be identified by numerical symbols or the symbols “+” or “-”).
“Redemption Price”, where used with respect to a Series 2016 Bond, means the principal amount of such Series 2016 Bond plus the applicable premium, if any, payable upon redemption thereof pursuant to the Series 2016 Indenture.
“Regular Record Date” means the fifteenth day (whether or not a Business Day) of the calendar month immediately preceding each Scheduled Interest Payment Date (i.e, each March 15 and September 15).
“Reserved Rights” means the retained rights of the Authority under the Series 2016 Indenture and under the Series 2016 Loan Agreement: (i) to give all approvals and consents permitted or required under the Series 2016 Loan Agreement to be given by the Authority; (ii) to execute supplements and amendments to the Series 2016 Loan Agreement to the extent and in the manner permitted by the Series 2016 Indenture and by the Series 2016 Loan Agreement; (iii) to receive all notices required to be given to the Authority under the Series 2016 Loan Agreement; (iv) concurrently with the Trustee, to pursue the remedies described in the Series 2016 Loan Agreement; (v) to receive all amounts payable to the Authority constituting fees, reimbursement of expenses and indemnification due to it under the Series 2016 Loan Agreement.
“Scheduled Interest Payment Date” means April 1 and October 1 of each year, commencing April 1, 2016.
“Securities Depository” means DTC or other Person registered as a clearing agency under Section 17A of the Securities Exchange Act of 1934, as amended, or whose business is
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“Series 2016 Bonds” means the Series 2016 Bonds as further described in this Official Statement.
“Series 2016 Debt Service Fund” means the fund established for the payment of the Series 2016 Bonds established pursuant to the Series 2016 Indenture.
“Series 2016 Indenture” means the Series 2016 Trust Indenture, dated as of January 1, 2016, between the Authority and Trustee, pursuant to which the Series 2016 Bonds are issued, as may be amended or supplemented from time to time.
“Series 2016 Loan Agreement” means the Series 2016 Loan Agreement dated as of January 1, 2016, by and between the Authority and the University, pursuant to which the Authority will lend to the University the proceeds of the Series 2016 Bonds and the University will agree to make Loan Payments to the Authority at times and in amounts sufficient in the aggregate, among other things, to pay the principal or Redemption Price of, and interest on, the Series 2016 Bonds.
“Short-Term Debt” means all obligations of the University for the repayment of borrowed money payable upon demand or having a final maturity of less than one year from the date incurred, excluding the current portion of any Long-Term Debt.
“Sinking Fund Account” means the Sinking Fund Account established as part of the Series 2016 Debt Service Fund for the retirement of the Series 2016 Bonds as provided in the Series 2016 Indenture.
“Sinking Fund Date” means each date on which the Series 2016 Bonds are subject to mandatory sinking fund redemption in accordance with the terms thereof and as described in the front potion of this Official Statement.
“Special Record Date” for the payment of any defaulted interest means a date fixed by the Trustee in accordance with the provisions of the Series 2016 Indenture.
“Student Loan Guarantees” means any obligations of the University to guarantee or act as surety for loans to its students in accordance with the Series 2016 Loan Agreement as more particularly described under “THE SERIES 2016 LOAN AGREEMENT – Student Loan Guarantees” in this Appendix.
“Subordinated Indebtedness” means any Long Term Debt or Short Term Debt which, by its terms (a) is incurred as described in paragraph (c) under “THE SERIES 2016 LOAN AGREEMENT – Restrictions on Indebtedness” in this Appendix; (b) is payable as to principal, redemption price or interest only if, at the time in question, the principal, premium, if any, or purchase price of or interest on, all Long Term Debt (except for Non-Recourse Debt or other Subordinated Indebtedness) then due or overdue (by acceleration or otherwise) has first been paid; and (c) is not subject to acceleration upon a default unless all Long Term Debt (except for Non-Recourse Debt or other Subordinated Indebtedness) have also been accelerated.
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“Subsidized Loans” means any obligation of the University issued to acquire or construct University Facilities and bearing interest at lower than prevailing market interest rates by reason of government subsidies or grants.
“Supplemental Series 2016 Indenture” means any supplement to the Series 2016 Indenture authorized pursuant to the terms thereof.
“Trust Estate” means (a) the Series 2016 Loan Agreement, including, but not limited to, the present and continuing right to make claim for, collect and receive all sums of money payable or receivable thereunder or under the Series 2016 Indenture, the exclusive right to bring action and proceeding thereunder or for the enforcement thereof, the exclusive right to grant consents, approvals and waivers and enter into amendments and to do any and all other things which the Authority is or may become entitled to do thereunder; (b) the Loan Payments; (c) all moneys and investments in the funds and accounts created under the Series 2016 Indenture (including all income and receipts earned on the funds and accounts held by the Trustee under the Series 2016 Indenture except as otherwise set forth in the Series 2016 Indenture), other than the Rebate Fund which shall be held in accordance with the provisions of the Series 2016 Indenture; and (d) any and all other property rights and interests of any kind and nature from time to time subsequently granted, bargained, sold, alienated, demised, released, conveyed, assigned, transferred, mortgaged or pledged to the Trustee, or otherwise subject to the Series 2016 Indenture, as and for additional security under the Series 2016 Indenture, by the University or any other Person on its behalf or with its written consent or by the Authority or any other Person on its behalf or with its written consent.
“Trustee” means The Bank of New York Mellon Trust Company, N.A., as trustee under the Series 2016 Indenture or its successor in the trust created thereunder.
“2016 Project” means the projects for the financing or refinancing of which the Series 2016 Bonds are being issued, as described under the heading “THE 2016 PROJECT” in the front portion of this Official Statement.
“University” means Arcadia University, a Pennsylvania nonprofit corporation.
“University Board” means the then legally constituted governing body vested with the power of management of the University or a duly authorized committee thereof.
“University Facilities” means the buildings, structures, real estate and any appurtenant facilities and fixtures previously acquired or to be acquired by the University with respect to its principal campus in Montgomery County, Pennsylvania and used or useful by the University in connection with or incidental to its functioning as an institution of higher learning and shall include the Project Facilities.
“Unrestricted Net Assets” means assets that are not subject to donor-imposed stipulations, as recorded on the annual financial statements of the University, or the equivalent as estimated by the University, if the University’s accounting presentation format changes materially in the future.
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THE SERIES 2016 INDENTURE
The Series 2016 Bonds will be issued under and are subject to the provisions of the Series 2016 Indenture, to which reference is made for complete details of the terms of the Series 2016 Bonds. The following summarizes certain provisions of the Series 2016 Indenture but is not to be regarded as a full statement thereof.
Pledge and Assignment
Under the Series 2016 Indenture, the Authority pledges to the Trustee all right, title and interest of the Authority in and to the Trust Estate (subject to the Reserved Rights) for the equal and ratable benefit of the Holders of the Series 2016 Bonds Outstanding thereunder, except as expressly provided in the Series 2016 Indenture.
Disposition of the Proceeds of the Sale of the Series 2016 Bonds
Upon issuance of the Series 2016 Bonds, the Trustee will deposit the proceeds of the Series 2016 Bonds received by it in a Clearing Fund established under the Series 2016 Indenture. The Trustee is directed to make transfers and payments from the clearing fund as instructed by the University and the Authority.
Place and Manner of Payment; Persons Entitled Thereto.
Interest on the Series 2016 Bonds will accrue at the rates described in this Official Statement, calculated on the basis of a 360-day year consisting of twelve 30-day months. The interest payable on any Scheduled Interest Payment Date will be paid by check or draft mailed on the applicable Scheduled Interest Payment Date to each Holder at the address shown on the Bond Register maintained by the Trustee. Interest on any Series 2016 Bonds that is not paid or duly provided for on any Scheduled Interest Payment Date shall forthwith cease to be payable to the Holder on the Regular Record Date provided in (i) above and will be paid instead to the Person in whose name the Series 2016 Bond is registered at the close of business on a Special Record Date established for the payment of such defaulted interest pursuant to the terms of such Series 2016 Bonds, such date to be not less than 10 days (whether or not a Business Day) prior to the date of proposed payment. The Trustee, at the expense of the Authority, shall cause notice of the proposed payment of such defaulted interest and the Special Record Date therefor to be mailed, first-class postage prepaid, to each Holder as of the Business Day preceding the mailing date, at his address as it appears in the bond register, not less than 10 days prior to such Special Record Date (but in no event more than 30 days prior to the proposed payment date). .
Interest on each Series 2016 Bond (or portion thereof) will cease to accrue on the maturity date thereof or date fixed for the redemption thereof, provided in the case of redemption that proper notice thereof has been given and provided in each case that there has been irrevocably deposited with the Trustee an amount sufficient to pay the principal or Redemption Price thereof, as applicable, plus all unpaid interest accrued thereon to such date.
(a) The principal or Redemption Price of the Series 2016 Bonds will be payable in lawful money of the United States of America at the Payment Office of the Trustee. No payment of principal or Redemption Price will be made on any Series 2016 Bond, unless and until such
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Series 2016 Bond is delivered to the Trustee for cancellation (or exchange in the case of a Series 2016 Bond redeemed in part). Notwithstanding the foregoing, interest on any Series 2016 Bonds and the Redemption Price of any Series 2016 Bonds redeemed by mandatory sinking fund redemption or optional redemption may be paid by wire transfer in immediately available funds to an account in any member bank of the Federal Reserve System designated in writing by the Holder thereof in an aggregate principal amount of $1,000,000 or more not less than 20 days prior to the applicable Scheduled Interest Payment Date or redemption date; provided, however, that in the case of the payment of the Redemption Price, any Series 2016 Bonds to be redeemed are presented to the Trustee for cancellation or exchange and that the Trustee’s records with respect to such payment of the principal of any Series 2016 Bond in accordance with this subparagraph shall be conclusive and binding on the Holder of any Series 2016 Bond so paid and each successive Holder thereof. Any such notice provided by an Holder in accordance with the preceding sentence may provide that it shall be effective for any and all future payment dates until otherwise specified in writing.
The University shall direct the Trustee in writing at least forty-five (45) days prior to the optional redemption of any Series 2016 Bonds (or such shorter period acceptable to the Trustee) regarding the optional redemption of any such Series 2016 Bonds.
So long as the Series 2016 Bonds are issued as Book-Entry Bonds, as described under “THE BONDS – Book-Entry System” in the front portion of this Official Statement, payment of the principal or Redemption Price of, and interest on, the Series 2016 Bonds shall be paid in accordance with the depository procedures of the Securities Depository.
Series 2016 Debt Service Fund; Sinking Fund Account
The Trustee shall establish a Series 2016 Debt Service Fund under the Series 2016 Indenture for the purpose of providing for the payment of the principal of, and interest on, such Series 2016 Bonds issued thereunder when the same shall be due and payable. The Trustee shall make deposits into the Series 2016 Debt Service Fund of: (A) all payments made by the University for deposit therein with respect to such Series 2016 Bonds pursuant to the Series 2016 Loan Agreement; and (B) all other amounts with respect to such Series 2016 Bonds required under the Series 2016 Indenture or pursuant to the Series 2016 Loan Agreement to be deposited therein. Subject to the terms of the Series 2016 Indenture, moneys on deposit in the Series 2016 Debt Service Fund shall be applied to the payment of principal or Redemption Price of, and interest on, the Series 2016 Bonds.
The Trustee shall establish within the Series 2016 Debt Service Fund, a Sinking Fund Account for the retirement of the Series 2016 Bonds. There shall be deposited in each Sinking Fund Account the amount required to retire such Series 2016 Bonds on each Sinking Fund Date in accordance with the terms provided in the Series 2016 Indenture. Before the 60th day prior to each Sinking Fund Date, the Authority, through or at the direction of the University, may exercise any of the following: (a) deliver to the Trustee for cancellation Series 2016 Bonds; (b) receive a credit in respect of its sinking fund redemption obligation for any Series 2016 Bonds which prior to said date have been redeemed or purchased and cancelled by the Trustee and not theretofore applied as a credit against such sinking fund redemption obligations, or (c) cause funds to be delivered to the Trustee, for deposit in the Sinking Fund Account, and to apply such
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funds to the purchase of Series 2016 Bonds as further described in the indenture. Each Series 2016 Bond so delivered, redeemed, or purchased shall be credited by the Trustee at 100% of the principal amount thereof to the obligation of the Authority with respect to the Sinking Fund Account, and any excess over such amount shall be credited to future obligations with respect to the Sinking Fund Account.
Rebate Fund
The Series 2016 Indenture establishes a Rebate Fund to be held and applied by the Trustee in accordance with the Series 2016 Indenture. Pursuant to the Series 2016 Loan Agreement, the University has covenanted to calculate and pay directly to the United States government all amounts due for payment of “arbitrage rebate” under Section 148(f) of the Code with respect to the Series 2016 Bonds. Accordingly, no amounts are expected to be initially deposited into the Rebate Fund provided, however, that the Authority may in the future deposit with the Trustee or direct in writing the Trustee to deposit in the Rebate Fund amounts held in any fund under the Series 2016 Indenture if (a) required under any amendments to Section 148(f) of the Code, (b) the University fails to make any required arbitrage rebate payments to the United States government, or (c) the Authority and the University otherwise agree that the funding of the Rebate Fund is desirable and appropriate. All amounts in the Rebate Fund, including income earned from investment of moneys held in the Rebate Fund, shall be held by the Trustee solely for the purpose specified in the Series 2016 Indenture, free and clear of the lien and pledge of the Series 2016 Indenture, and the Trustee, at the written direction of the University, shall pay said amounts over to the United States of America.
Investment or Deposit of Funds
All moneys received by the Trustee under the Series 2016 Indenture for deposit in any Fund or account established thereunder shall be considered trust funds, shall not be subject to lien or attachment (except as otherwise provided in the Series 2016 Indenture) and shall, except as therein provided, be deposited with the Trustee, and all such deposits shall, to the extent not insured and to the extent permitted by law, be fully secured by full faith and credit obligations of the United States of America or secured as otherwise provided by law for such trust deposits. Under certain conditions the Trustee may deposit such moneys in other authorized depositories, where they shall be fully secured, to the extent not insured and to the extent permitted by law, by full faith and credit obligations of the United States of America or secured as otherwise provided by law for such trust deposits.
Moneys on deposit in the funds established pursuant to the Series 2016 Indenture shall be invested and reinvested by the Trustee as follows:
(a) All investments shall constitute Qualified Investments and shall mature, or be subject to repurchase, withdrawal without penalty or redemption at the option of the Trustee, on or before the dates on which the amounts invested are reasonably expected to be needed for the purposes of the Series 2016 Indenture.
(b) All investments shall be made at the direction of the University (given in writing). In the absence of any direction from the University as to the investment of any moneys held
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under the Series 2016 Indenture, the Trustee shall cause such moneys to be invested in any Qualified Investments described in clause (vi) of the definition thereof and specifically identified in a written direction from the University. The Trustee may rely on the University’s written investment directions concerning the legality and suitability of the directed investments. The Trustee shall not make any representation as to the accuracy of any quotation of market price of any security or investment (or the accrued interest thereon) in any fund or account, and the University shall further be obligated to indemnify and hold harmless the Trustee, its officers and employees, from and against any and all liabilities, claims and charges, etc. in connection with or resulting from the Trustee’s valuation of the investments in any funds or accounts as provided in the Series 2016 Indenture.
(c) All interest, income and gains received in respect of amounts on deposit in any Fund or account shall be applied as follows:
(i) all interest, income and gains received in respect of Qualified Investments in the Series 2016 Debt Service Fund shall be retained therein and credited against subsequent deposit requirements as provided in the Series 2016 Indenture; and
(ii) all interest, income and gains received in respect of Qualified Investments in the Rebate Fund shall be retained therein. Whenever any other transfer or payment is required to be made from any particular Fund or account, such transfer or payment shall be made from such combination of maturing principal, redemption or repurchase prices, liquidation proceeds and withdrawals of principal as the Trustee deems appropriate for such purpose.
(d) Neither the Authority nor the Trustee shall be accountable for any depreciation in the value of any Qualified Investments or any losses incurred upon any authorized disposition thereof.
Valuation of Funds
The Trustee shall determine the value of the assets in each of the Funds or accounts established under the Series 2016 Indenture as of each Scheduled Interest Payment Date. As soon as practicable after each such valuation date, the Trustee shall furnish to the Authority and the University a report of the status of each Fund and account as of such date. The Trustee shall also advise the University at such time of the amount then available in the Series 2016 Debt Service Fund as a credit against future deposits, prior to the next valuation date in direct order of the due dates of such deposits. In computing the value of assets in any fund or account, investments shall be valued at the market value thereof (except as otherwise provided in the Series 2016 Indenture), and all investments (valued as aforesaid) and accrued interest thereon shall be deemed a part of such funds and accounts. The Trustee shall provide the University with monthly or other periodic statements showing amounts deposited into and withdrawn from each Fund, the investments made with amounts in each Fund, and the investment income received from such investments. The Authority shall also receive copies of any such statements upon its written request.
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Covenants of Authority
The Authority shall promptly pay the principal of, the redemption premium, if any, and the interest on every Series 2016 Bond issued in the Series 2016 Indenture, but shall be required to make such payment only out of the Trust Estate. In addition, among other things, the Authority shall maintain its existence as a body corporate and politic and public instrumentality under the Act, and shall not sell, lease, encumber or otherwise transfer any of its interest in and to the Trust Estate other than as provided in the Series 2016 Indenture. The Authority shall use its best efforts to exclude the interest on the Series 2016 Bonds from gross income for Federal income tax purposes and not to adversely affect that status under the provisions of the Code.
Default and Remedies
Events of Default, as defined in the Series 2016 Indenture, include, among other things, the following:
(a) the failure to pay any installment of interest on any Bond when it becomes due and payable; or
(b) the failure to pay the principal or Redemption Price of any Series 2016 Bonds when it becomes due and payable at maturity, upon redemption or otherwise; or
(c) the failure by the University to pay when due any sum due under the Series 2016 Loan Agreement within any applicable grace period; or
(d) the occurrence and continuance of any Event of Default under the Series 2016 Loan Agreement (other than an Event of Default resulting from an occurrence described in clauses (a) through (c) above); or
(e) the default by the Authority in the due and punctual performance of any other covenant in the Series 2016 Bonds or in the Series 2016 Indenture or in the Series 2016 Loan Agreement (other than as specified in clauses (a) or (b) above); or
(f) the failure by the Authority to comply with any provision of the Act, which renders it incapable of fulfilling its obligations under the Series 2016 Indenture or Series 2016 Loan Agreement.
Notice of Default; Opportunity to Cure.
No Event of Default shall occur under (d), (e) or (f) under “Events of Default” described above unless such Event of Default continues for 60 days after written notice requiring the same to be remedied shall have been given to the Authority and the University by the Trustee, which may give such notice in its discretion and shall give such notice at the written request of the Holders of not less than 25% in principal amount of Series 2016 Bonds then Outstanding; provided, however, that if such performance requires work to be done, actions to be taken or conditions to be remedied, which by their nature cannot reasonably be done, taken or remedied, as the case may be, within such 60-day period, no Event of Default shall be deemed to have occurred or to exist if, and so long as, the Authority or the University shall commence such
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performance within such 60-day period, and the Authority or the University shall diligently and continuously prosecute the same to completion.
Acceleration and Annulment Thereof
If any Event of Default that has occurred and is continuing of which the Trustee has notice pursuant to Section 10.1(s) under the Series 2016 Indenture, the Trustee may and, upon written request of the Holders of 25% in principal amount of the Series 2016 Bonds then Outstanding thereunder and affected thereby, shall, by notice in writing to the Authority and the University, declare the principal of all Series 2016 Bonds then Outstanding to be immediately due and payable, and upon such declaration, such principal, together with interest accrued thereon, shall become due and payable immediately at the place of payment provided, unless the University cures such default prior to the date of the declaration.
If, after the principal of the Series 2016 Bonds has been so declared to be due and payable, all arrears of interest upon the Series 2016 Bonds and the principal of all Series 2016 Bonds then Outstanding which have matured, except the principal of any Series 2016 Bonds due solely because of such declaration, and the interest accrued on the Series 2016 Bonds since the last Scheduled Interest Payment Date are paid by the Authority, and the Authority also performs all other things in respect to which it may have been in default under the Series 2016 Indenture and pays the fees and reasonable expenses and charges of the Trustee, the Holders of Series 2016 Bonds, and any trustee appointed under the Act, including reasonable attorney’s fees and expenses, then, and in every such case, the Holders of a majority in principal amount of the Series 2016 Bonds then Outstanding, by written notice to the Authority and to the Trustee, may annul such declaration and its consequences and such annulment shall be binding upon the Trustee and upon all Holders of Series 2016 Bonds issued under the Series 2016 Indenture; but no such annulment shall extend to or affect any subsequent default or impair any right or remedy consequent thereon.
Remedies for Default
Upon the happening and continuance of any Event of Default, then and in every such case the Trustee may, and upon the written request of the Holders of not less than a majority in aggregate principal amount of the Series 2016 Bonds then Outstanding under the Series 2016 Indenture and the provision of indemnity satisfactory to the Trustee shall proceed to protect and enforce its rights and the rights of the Holders under the laws of the Commonwealth and under the Series 2016 Loan Agreement and the Series 2016 Indenture by such suits, actions or special proceedings in equity or at law, or by proceedings in the office of any board or officer having jurisdiction, either for the specific performance of any covenant, condition or agreement contained in the Series 2016 Indenture or in aid of execution of any power granted in the Series 2016 Indenture or for the enforcement of any proper legal or equitable remedy, as the Trustee, being advised by counsel, shall deem most effectual to protect and enforce such rights. The rights and remedies which the Trustee may or shall exercise include all or any of the following:
(i) The right in its own name by mandamus or other suit, action or proceeding at law or in equity to enforce all rights of the Holders, including the right to require the Authority to carry out the covenants and agreements of the Authority contained in the
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Series 2016 Indenture and to require the Authority to carry out any agreements with or for the benefit of the Holders and to perform its duties under the Act;
(ii) The right to bring suit upon the Series 2016 Bonds Outstanding under the Series 2016 Indenture; provided, however, that any judgment obtained in any such suit against the Authority shall be payable only out of the receipts and revenues of the Authority under the Series 2016 Loan Agreement and the Trust Estate;
(iii) The right by action or suit in equity to require the Authority to account as if it were the trustee of an express trust for the Holders;
(iv) The right by action or suit in equity to enjoin any acts or things which may be unlawful or in violation of the rights of the Holders;
(v) The right to apply all moneys and funds held under the Series 2016 Indenture (except moneys and funds which shall theretofore have been set aside for the payment or purchase of particular Series 2016 Bonds and moneys and funds held in the Rebate Fund) to the payments as provided in the Series 2016 Indenture; and
(vi) The right to exercise any or all other rights or remedies provided by the Act, or by any other law or by any other suit, action or other special proceeding in equity or at law either for the specific performance of any covenant or agreement contained in the Series 2016 Indenture or in aid or execution of any power granted in the Series 2016 Indenture.
All rights of action under the Series 2016 Indenture, or under any of the Series 2016 Bonds secured thereby, enforceable by the Trustee, may be enforced by it without the possession of any of the Series 2016 Bonds or the production thereof on the trial or other proceedings relative thereto, and any such suit, action or proceeding instituted by the Trustee shall be brought in its name and as Trustee of an express trust for the equal and ratable benefit of the Holders of all Series 2016 Bonds, subject to the provisions of the Series 2016 Indenture.
No remedy conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other remedy or remedies.
In case any proceeding taken by the Trustee on account of any Event of Default shall have been discontinued or abandoned for any reason, or shall have been determined adversely to the Trustee, then and in every such case the Authority, the Trustee and the Holders shall be restored to their former positions and rights under the Series 2016 Indenture, respectively, and all rights, remedies, powers and duties of the Trustee shall continue as though no such proceeding had been taken.
No delay or omission in respect of exercising any right or power accruing upon any default shall impair such right or power or be a waiver of such default, and every remedy given by the Series 2016 Indenture may be exercised from time to time and as often as may be deemed expedient.
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It is the purpose and intention of the Series 2016 Indenture to provide rights and remedies to the Trustee and the Holders which may be lawfully granted under the provisions of the Act, but, should any right or remedy granted under the Series 2016 Indenture be held to be unlawful, the Trustee and the Holders shall be entitled, as above set forth, to every other right and remedy provided in the Series 2016 Indenture.
The remedies conferred in the Series 2016 Indenture shall be in addition to all remedies provided for in the Series 2016 Loan Agreement.
Powers of Holders
Any Holder or Holders owning a majority in principal amount of the Series 2016 Bonds then Outstanding under the Series 2016 Indenture and affected thereby shall have the right to direct the method and place of conducting all remedial proceedings by the Trustee under the Series 2016 Indenture, provided such directions shall not be otherwise than in accordance with law or the provisions of the Series 2016 Indenture and further provided that the Trustee shall have been given indemnity satisfactory to it against its fees, costs, expenses and liabilities, and that the Trustee shall have the right to decline to follow any such direction which in the opinion of the Trustee would be unjustly prejudicial to Holders not parties to such direction.
Limitations on Actions by Holders of Series 2016 Bonds
Holders shall have no right to pursue any remedy under the Series 2016 Indenture unless (a) the Trustee shall have been given written notice of an Event of Default, (b) the Holders of at least 25% in principal amount of the Series 2016 Bonds then Outstanding shall have requested the Trustee, in writing, to exercise the powers granted under the Series 2016 Indenture or to pursue such remedy, (c) the Trustee shall have been offered indemnity satisfactory to it against its fees, costs, expenses and liabilities, and (d) the Trustee shall have failed to comply with such request within a reasonable time. Such notification, request and offer of indemnity are declared in each case at the option of the Trustee to be conditions precedent to the execution of the powers and trusts of the Series 2016 Indenture or to any other remedy thereunder.
Application of Moneys in Event of Default
Subject to the terms of the Intercreditor Agreement, all moneys received by the Trustee or by any receiver under the Series 2016 Indenture shall, including all moneys and funds held by the Trustee in the funds and accounts established under the Series 2016 Indenture (except the Rebate Fund and except moneys and funds which shall theretofore have been set aside for the payment or purchase of particular Series 2016 Bonds) shall, after the payment of the outstanding and current administration, operating and management expenses incurred by the Trustee or receiver be applied by the Trustee or receiver in the following order of priority:
(a) To the payment of all fees and expenses owing to the Trustee under the Series 2016 Indenture, including without limitation, fees, costs, expenses and liabilities reasonably incurred by the Trustee (including reasonable compensation to the Trustee, its agents, attorneys and counsel) and to the repayment of all advances made by the Trustee;
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(b) To the payment of the reasonable costs of the Authority including counsel fees and expenses, any disbursements of the Authority with interest thereon and its reasonable compensation;
(c) Unless the principal of all of the Series 2016 Bonds Outstanding under the Series 2016 Indenture has become due, whether at the due dates expressed therein, by proceedings for redemption, or by declaration as provided in the Series 2016 Indenture or otherwise, then:
(i) To the payment of any overdue installments of interest on the Outstanding Series 2016 Bonds in the order of the expressed maturity of the installments of such interest, with interest on overdue installments of interest (to the extent that the payment of such interest is enforceable under applicable law) at the respective rates provided in the Series 2016 Bonds; and, if the amount to be applied to the payment of any installment of interest shall not be sufficient to pay such installment in full, then to the payment thereof ratably, according to the amounts due on such installment, to the Persons entitled thereto without any discrimination or preference; and
(ii) After the payment of all such overdue installments of interest with the interest thereon, then to the payment of the principal of all of the Series 2016 Bonds which shall have become due by their express terms, not including Series 2016 Bonds called for redemption for the payment of which moneys are held pursuant to the provisions of the Series 2016 Bonds Series 2016 Indenture, with interest on such Series 2016 Bonds at the rate or rates provided for in such Series 2016 Bonds from the respective dates upon which they became due in the order of maturity dates expressed in the Series 2016 Bonds, and if the amount to be distributed at any particular time shall not be sufficient to pay in full all of the Series 2016 Bonds due on any particular date, to the payment thereof ratably according to the amounts due thereon; and
(iii) then to the payment of the principal of and the interest on the Series 2016 Bonds thereafter becoming due in accordance with the provisions of the Series 2016 Indenture.
(d) In case the principal of all of the Series 2016 Bonds shall have become due, whether at the due dates expressed therein, by proceedings for redemption, by declaration or otherwise, then:
(i) To the payment of the full amount then owing and unpaid upon all Series 2016 Bonds Outstanding for principal and interest together with interest on such unpaid amounts (to the extent that the payment of such interest is enforceable under applicable law) at the respective rates provided in the Series 2016 Bonds then Outstanding, and in case such moneys shall be insufficient to pay the same in full, then to the payment of such principal and interest without preference or priority of principal over interest or of interest over principal or of any installment of interest over any other installment of interest ratably to the aggregate of such principal and interest; and
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(ii) Any surplus thereof remaining after the payment of the full principal of and interest on all Outstanding Series 2016 Bonds together with interest thereon, to the University or to whomsoever may be lawfully entitled to receive the same.
Whenever moneys are to be applied by the Trustee or by any receiver pursuant to the provisions of the Series 2016 Indenture as described above, such moneys shall be applied by the Trustee or receiver at such times, and from time to time, as the Trustee or receiver in its sole discretion shall determine, having due regard to the amount of such moneys available for application in the future. The deposit of such moneys with the bank or trust company at which the Series 2016 Bonds shall be payable, or otherwise setting aside of such moneys, in trust for the proper purpose, shall constitute proper application by the Trustee or receiver; and the Trustee or receiver shall incur no liability whatsoever to the Authority, to any Holder or to any other Person for any delay in applying any such moneys, so long as the Trustee or receiver acts with reasonable diligence, having due regard to the circumstances, and ultimately applies the same in accordance with such provisions of the Series 2016 Indenture as may be applicable at the time of application by the Trustee or receiver. Whenever the Trustee or receiver shall exercise such discretion in applying such moneys, it shall fix the date upon which such application is to be made, including determination of a Special Record Date and the provision of notice thereof as provided in the form of the Series 2016 Bond, and upon such date interest on the amounts of principal to be paid on such date shall cease to accrue. The Trustee or receiver shall give notice of any Special Record Date as provided in the Series 2016 Indenture and shall give such other notice as it may deem appropriate of the fixing of any such date, and shall not be required to make payments to the Holder of any Series 2016 Bond until such Series 2016 Bond shall be surrendered to the Trustee or receiver for cancellation or stamping with reference to such payment.
Trustee May File Proofs of Claim.
In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding under the United States Bankruptcy Code relating to the Authority or the University, any other obligor upon the Series 2016 Bonds or any property of the Authority or University, the Trustee (whether or not the principal of the Series 2016 Bonds shall then be due and payable by acceleration or otherwise, and whether or not the Trustee shall have made any demand upon the Authority or the University for the payment of overdue principal, redemption premium, if any, and interest) is entitled and empowered, by intervention in such proceeding or other means:
(i) to file and prove a claim for the whole amount of the principal, redemption premium, if any, and interest owing and unpaid in respect of the Series 2016 Bonds then Outstanding or for breach of the Series 2016 Indenture or the Series 2016 Loan Agreement and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and of the Holders allowed in such proceeding; and
(ii) to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same;
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and any receiver, assignee, trustee, liquidator, sequestrator or similar official in any such judicial proceeding is authorized by each Holder to make such payments to the Trustee, and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under the Series 2016 Indenture.
No provision of the Series 2016 Indenture empowers the Trustee to authorize or consent to or accept or adopt on behalf of any Holders of the Series 2016 Bonds any plan of reorganization, arrangement, adjustment or composition affecting any of the Series 2016 Bonds or the rights of any Holder thereof, or authorizes the Trustee to vote in respect of the claim of any Holder in any proceeding described above.
Amendments and Supplements
The Series 2016 Indenture may be amended or supplemented at any time, without the consent of the Holders, by a Supplemental Series 2016 Indenture, for one or more of the following purposes: (a) to set forth such matters as are specifically required or permitted under the Series 2016 Indenture or such other matters as will not materially and adversely affect the Holders of the Series 2016 Bonds Outstanding; (b) to add additional covenants of the Authority or to surrender any right or power conferred upon the Authority in the Series 2016 Indenture; (c) to make appropriate provision for the issuance of Series 2016 Bonds in bearer form with coupons should such issuance be available without causing the interest on any Series 2016 Bonds to become taxable for Federal income tax purposes; (d) to comply with any provision of the Code affecting the tax-exempt status of interest on any Series 2016 Bonds; (e) to make conforming changes in connection with any changes to any Series 2016 Loan Agreement otherwise permitted under the Series 2016 Indenture; (f) to obtain or maintain any credit rating or ratings on the Series 2016 Bonds; (g) to cure any ambiguity or to cure, correct or supplement any defective (whether because of any inconsistency with any other provisions of the Series 2016 Indenture or otherwise) provision of the Series 2016 Indenture in such manner as shall not be inconsistent with the Series 2016 Indenture (which cured, corrected or supplemented provision shall supersede any actions taken by the Trustee under the Series 2016 Indenture) and shall not impair the security of the Series 2016 Indenture or materially and adversely affect the Holders of Series 2016 Bonds. Notwithstanding the foregoing, the Series 2016 Indenture shall not be amended to affect the rights or liabilities of the Trustee without its written consent.
The Series 2016 Indenture may be amended by a Supplemental Series 2016 Indenture approved by the Holders of at least a majority in aggregate principal amount of the Series 2016 Bonds then Outstanding and affected by such amendment, except with respect to (a) interest payable on any Series 2016 Bonds, (b) the dates of maturity, sinking fund and redemption provisions of any Series 2016 Bonds, (c) the amendment provisions of the Series 2016 Indenture, or (d) the security provisions under the Series 2016 Indenture; provided, that no amendment shall be made which adversely affects the rights of some but less than all of the Series 2016 Bonds without the consent of the Holders of at least a majority of the then Outstanding Series 2016 Bonds so affected, and no amendment shall be made which affects the rights of some but less than all the Outstanding Series 2016 Bonds without the consent of the Holders of a majority of the Series 2016 Bonds so affected. Amendments with respect to matters described in clauses (a),
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(b), (c) or (d) of the first sentence of this paragraph shall be effected only with the consent of Holders of all Series 2016 Bonds then Outstanding and affected by such amendments. The Trustee is authorized to join with the Authority in the execution and delivery of any Supplemental Series 2016 Indenture or amendment permitted by the above, and in so doing shall be fully protected by an opinion of Counsel that such Supplemental Series 2016 Indenture or amendment is permitted and has been duly authorized by the Authority, and that all things necessary to make it a valid and binding agreement have been done.
The Trustee
The Trustee will undertake only those obligations and duties which are expressly set out in the Series 2016 Indenture. Under the terms of the Series 2016 Indenture, the Trustee is liable only for those damages caused by its gross negligence or willful misconduct.
The Trustee may execute any of the trusts or powers and perform the duties required either directly or by or through attorneys, agents, receivers or employees. The Trustee is entitled in good faith to rely conclusively and be free from all liability for acting or refraining from acting upon the advice of counsel. Unless otherwise provided by law, the Trustee is under no obligation to take any action in respect to any default or otherwise, or toward the execution or enforcement of any of the trusts created under the Series 2016 Indenture, or to institute, appear in or defend any suit or other proceeding, unless requested to do so in writing by the Holders owning at least 25% in aggregate principal amount of the Series 2016 Bonds then Outstanding.
The Trustee may be provided a reasonable compensation for all services rendered and for all reasonable expenses, charges and other disbursements of the Trustee and those of its attorneys, agents, and employees, incurred in the administration and execution of the trusts created and the performance of its powers and duties. The Trustee may at any time make advances to effect performance of any covenant or agreements contained in the Series 2016 Indenture or Series 2016 Loan Agreement on behalf of the Authority or the University if they fail to perform such.
The Trustee may resign and be discharged of the trusts created by the Series 2016 Indenture. To resign, the Trustee must execute a written instrument resigning such trusts and specifying the date when such resignation would be in effect, by filing the same with the Secretary of the Authority, the University and the Holders of all Series 2016 Bonds. If no Event of Default has occurred and is continuing, the Trustee may be removed upon sixty (60) days prior notice to the Trustee, by the Authority at the direction of the University. If an Event of Default has occurred and is continuing, the Trustee may be removed upon sixty (60) days prior notice to the Trustee, only by written direction of any Holder or Holders owning, in the aggregate, a majority in principal amount of the Series 2016 Bonds then Outstanding.
Defeasance
When interest on, and principal or Redemption Price (as the case may be) of, all Series 2016 Bonds issued under the Series 2016 Indenture have been paid, or there shall have been deposited with the Trustee an amount, evidenced by cash or non-callable Government Obligations, the principal of and interest on such cash or securities, when due, will provide
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sufficient moneys to fully pay all Series 2016 Bonds issued under the Series 2016 Indenture, as well as all other sums payable thereunder by the Authority, all right, title and interest of the Trustee shall thereupon cease and the Trustee, on demand of the Authority, shall release the Series 2016 Indenture and shall execute such documents to evidence such release as may be reasonably required by the Authority and shall turn over to the Authority or to such Person, body or authority as may be entitled to receive the same, all balances remaining in any Funds or accounts thereunder.
Provision for the payment of any Series 2016 Bonds (or portions thereof) shall be deemed to have been made when the Trustee holds in the Series 2016 Debt Service Fund or other Fund or account established for such purpose (i) cash in an amount sufficient to make all payments (including the principal or Redemption Price of and interest on the Series 2016 Bonds) specified in the preceding paragraph with respect to such Series 2016 Bonds, or (ii) noncallable Government Obligations maturing on or before the date or dates when the payments specified above shall become due, the principal amount of which and the interest thereon, when due, is or will be, in the aggregate, sufficient without reinvestment to make all such payments provided that (A) the Trustee shall have received a Favorable Opinion of Bond Counsel with respect to such deposit of obligations described in clause (i) or (ii) above and (B) provision for payment of Series 2016 Bonds shall be deemed to be made only if the Trustee holds in the Series 2016 Debt Service Fund or other fund established for such purpose cash and/or such obligations for payment of such Series 2016 Bonds in amounts sufficient to make all payments specified above with respect to such Series 2016 Bonds, as verified by an accountant’s certification in form and by an accountant acceptable to the Trustee.
Neither the moneys nor the obligations deposited with the Trustee pursuant to the above shall be withdrawn or used for any purpose other than, and such obligations and moneys shall be segregated and held in trust for, the payment of the principal or Redemption Price and interest on, the Series 2016 Bonds (or portions thereof).
Whenever moneys or obligations shall be deposited with the Trustee for the payment or redemption of Series 2016 Bonds (or portions thereof) more than 60 days prior to the date that such Series 2016 Bonds are to mature or be redeemed, the Trustee shall mail a notice to the Holders of the Series 2016 Bonds for the payment of which such moneys or obligations are being held at their registered addresses stating that such moneys or obligations have been deposited. Such notice shall also be sent by the Trustee to the Rating Agencies. Notwithstanding the foregoing, no delivery to the Trustee under the provisions of the Series 2016 Indenture shall be deemed a payment of any Series 2016 Bonds which are to be redeemed prior to their stated maturity until such Series 2016 Bonds shall have been irrevocably called or designated for redemption on a date thereafter on which such Series 2016 Bonds may be redeemed in accordance with the provisions of the Series 2016 Indenture and proper notice of such redemption shall have been given in accordance with the Series 2016 Indenture, or the Authority shall have given the Trustee, in form satisfactory to the Trustee, irrevocable instructions to give, in the manner and at the times prescribed by the Series 2016 Indenture, notice of redemption.
If the Authority shall cause to be paid unto the Holders of all Series 2016 Bonds Outstanding the principal and interest to become due and the premium thereon if any, at the times and in the manner stipulated therein, or if the Authority its successors or assigns, shall
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cause to be delivered to the Trustee for cancellation all Series 2016 Bonds Outstanding, then the Series 2016 Indenture and the estate, title, interest and rights thereby granted shall cease, determine and be void. Thereupon, the Trustee (a) shall, upon the written request of the Authority made by the University, release, cancel and discharge the lien of the Series 2016 Indenture, and execute and deliver to the Authority such instruments (prepared by or on behalf of the Authority) necessary to satisfy the lien, and (b) shall discharge the Series 2016 Indenture and the Series 2016 Loan Agreement and reconvey to the Authority the estate, title, interest and rights conveyed, and assign and deliver to the University any money and other property at the time subject to the lien of the Series 2016 Indenture which may then be in possession of the Trustee.
The release, cancellation and discharge of the Series 2016 Indenture, however, shall be without prejudice to the right of the Trustee and the Authority to be paid any compensation then due to it hereunder, and to be protected and saved harmless by the University from any and all losses, liabilities, costs and expenses, including counsel fees and expenses, including the allocated costs and expenses of in-house counsel and legal staff at any time incurred by the Trustee and the Authority hereunder, or connected with any Series 2016 Bond, of and from which, if the Series 2016 Indenture had not been released, canceled and discharged, the University would have been obligated by the terms of the Series 2016 Indenture or the Series 2016 Loan Agreement to protect and save the Trustee harmless of and from such losses, liabilities, costs and expenses as provided herein and in the Series 2016 Loan Agreement.
THE SERIES 2016 LOAN AGREEMENT
The Series 2016 Loan Agreement is between the Authority, as lender, and the University, as borrower and provides for, among other things, the loan of the proceeds of the Series 2016 Bonds by the Authority to the University, and the repayment of the loan by the University.
Representations
The Authority and the University each make certain representations in the Series 2016 Loan Agreement. The representations of the Authority include, but are not limited to, representations as to the power of the Authority to enter into the Series 2016 Loan Agreement and its status as a body corporate and politic duly constituting a public corporation and a public instrumentality of the Commonwealth. The representations of the University include representations as to its status as a nonprofit organization described in Section 501(c)(3) of the Code and the power of the University to enter into the Series 2016 Loan Agreement.
2016 Project
The proceeds of the Series 2016 Bonds, together with other funds available for the purpose, are being loaned by the Authority to the University for the purpose of enabling the University to finance the costs of the 2016 Project. The University agrees to provide and maintain continuously insurance, including programs of self-insurance, covering such risks, in such amounts and with such deductibles as are customarily maintained by other institutions of like size and character. C-26
The costs of the 2016 Project are to be paid by the Trustee from available moneys held in the Clearing Fund established under the Series 2016 Indenture, and, to the extent such available moneys are not sufficient for such purpose, from other available moneys of the University available for the purpose.
Loan Payments and Additional Payments
Under the Series 2016 Loan Agreement, the University has covenanted to make to the Authority: on or before the 15th day of the calendar month immediately preceding each Scheduled Interest Payment Date, during the term of the Series 2016 Loan Agreement, an amount which, together with other available funds on deposit with the Trustee in the Series 2016 Debt Service Fund, is sufficient to pay the interest becoming due on the Series 2016 Bonds on such Scheduled Interest Payment Date; on or before the 15th day preceding each date for the required payment of the principal of the Series 2016 Bonds, whether at maturity or by mandatory sinking fund redemption, an amount which, together with other available funds on deposit with the Trustee in the Series 2016 Debt Service Fund, is sufficient to pay the principal amount of the Series 2016 Bonds becoming due (at stated maturity or through sinking fund redemption) on such principal payment date.
In addition to the loan payments specified above, the University has covenanted in the Series 2016 Loan Agreement: to pay to the Authority an initial Authority fee, when due, and the Authority’s Administrative Expenses incurred from time to time in connection with the 2016 Project; and to pay to the Trustee its agreed upon fees and expenses as and when such amounts become due and payable.
Pledged University Revenues
To secure performance and the payment of the amounts payable by the University under the Series 2016 Loan Agreement, the University has pledged, assigned and granted to the Authority a lien on and a security interest in, and agrees to pay or cause to be paid directly to the Trustee (to the extent legally permitted), its Pledged University Revenues, under and subject to all Permitted Encumbrances; provided, however, that so long as any other Parity Indebtedness (other than the University’s obligations under this Series 2016 Loan Agreement) shall be Outstanding, the University has agreed in the Intercreditor Agreement to deliver such Pledged University Revenues instead to the Collateral Agent to be applied for the equal and ratable benefit of the holders of all Parity Indebtedness, as provided in the Intercreditor Agreement. However, such pledge, assignment, grant and agreement to pay will not limit the right of the University to apply its Pledged University Revenues in such manner and to such purposes as it deems appropriate so long as no Event of Default has occurred and is continuing.
Existence; Merger and Consolidation
Except as otherwise described below, the University covenants to preserve and maintain its existence under or in accordance with the laws of the Commonwealth and its authority to operate the Project Facilities.
The University may consolidate with or merge into another entity or permit one or more other entities to consolidate with or merge into it, or sell or otherwise transfer to another entity C-27
the 2016 Project or all or substantially all of its assets as an entirety, and, at the discretion of the University, it may consolidate, merge or dissolve, but only if, in each case:
(a) the University is the surviving, resulting or transferee entity, as the case may be; or in the event the University is not the surviving, resulting or transferee entity, such entity assumes in writing in form and substance satisfactory to the Authority all of the obligations of the University under the Series 2016 Loan Agreement; and
(b) if the University is not the surviving, resulting or transferee entity, as the case may be, such entity has been determined by the Internal Revenue Service to be a charitable organization described in Section 501(c)(3) of the Code; and
(c) the Authority and the Trustee receive a Favorable Opinion of Bond Counsel with respect to the transaction; and
(d) the University or the surviving, resulting or transferee entity obtains and delivers to the Authority and the Trustee all required approvals or an opinion of Counsel satisfactory to the Authority and the Trustee to the effect that no approvals (not obtained) are required for the change in ownership resulting from such merger, consolidation or transfer of assets; and
(e) the Authority and the Trustee receive a certificate from an Authorized University Representative stating that no Event of Default has occurred and is continuing or will have occurred by reason of the transaction, and no event has occurred which, with the passage of time or giving of notice or both, would constitute an Event of Default; and
(f) prior to the consummation of the transaction the University delivers to the Authority and the Trustee a certificate of an Authorized Officer of the University demonstrating that all of the foregoing conditions have been satisfied.
Any Person that succeeds to and assumes the obligations of the University as indicated above will be required to execute and deliver to the Trustee and the Authority such documents and instruments as are, in the reasonable opinion of the Trustee and the Authority, necessary or appropriate for the purpose of effectuating such successor and assumption.
If the University enters into a transaction as indicated above, (i) any indebtedness previously incurred by the other party is permitted to remain outstanding, and (ii) any liens, security interest or other similar rights and interests securing such indebtedness may remain in effect, provided that such security may not be extended or renewed (which terms will not apply to the filing of continuation statements under the Pennsylvania Uniform Commercial Code) or modified to attach to any additional property or revenue.
Investment of Funds
The University and the Authority agree that the all moneys in any Fund established under the Series 2016 Indenture may be invested in Qualified Investments as the University may direct, subject to and in accordance with the Series 2016 Indenture, provided, however, that any directions conform to the requirements of the Series 2016 Indenture.
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Books, Records and Financial Reports
The University covenants to keep accurate records and books of account with respect to the revenues and expenses of the University in accordance with Generally Accepted Accounting Principles and to have its financial statements examined annually by an Accountant. Within 150 days after the end of each Fiscal Year during the term of the Series 2016 Loan Agreement, the University is to provide to the Authority and Trustee a copy of the report of such Accountant, together with a certificate of the chief financial officer of the University to the effect that the University was in compliance with the rate covenant as described under “Rate Covenant” below. Copies of such report and certificate shall be available for inspection at reasonable times by Holders of the Series 2016 Bonds. The delivery of such financial statements and the Accountant’s report to the Trustee is for information purposes only. The Trustee shall have no duty to review any financial statement or Accountant’s report delivered to it and does not have a duty to verify the accuracy of such financial statements or report. In addition, the Trustee shall not be considered to have notice of the contents of such financial statements or report or of a default or Event of Default under the Series 2016 Loan Agreement and under the Series 2016 Indenture based solely on such contents.
Rate Covenant
The University covenants that it shall fix, charge and collect during each Fiscal Year rates, fees and charges for its services in an amount sufficient to produce a ratio of (i) the Net Revenues of the University for such Fiscal Year, together with other moneys available to the University for such purpose, to (ii) the Debt Service Requirements for such Fiscal Year with respect to all Long-Term Debt of the University Outstanding during such Fiscal Year, of at least 110%.
If, in any Fiscal Year, the University fails to meet the foregoing covenant (the “Rate Covenant”), it shall immediately request a Consultant to make a report and recommendation with respect to such rates, fees and charges. The University further covenants that upon receipt of such report and recommendation from the Consultant, the University shall cause copies thereof to be filed with the Trustee and the Authority, and the University shall take appropriate steps to cure such failure. No Event of Default shall occur, however, due to the failure of the University to comply with the Rate Covenant for any Fiscal Year of the University unless the University also fails to achieve compliance with the Rate Covenant for the next succeeding Fiscal Year of the University.
Restrictions on Indebtedness
The University covenants and agrees that it will not incur or assume (the terms “incur” and “assume,” for such purposes, mean and include the guaranteeing of or the direct or indirect assumption of liability for the debts of others) any Indebtedness other than (i) Long-Term Debt of the University Outstanding immediately prior to the issuance of the Series 2016 Bonds, (ii) Long-Term Debt in connection with the issuance of the Series 2016 Bonds, (iii) Long-Term Debt and Short-Term Debt permitted as otherwise described in this section, and (iv) Student Loan Guarantees as described under “Student Loan Guarantees” below.
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(a) Except as otherwise provided below, if no Event of Default hereunder shall have occurred and be continuing, the University may incur or assume Long-Term Debt for any lawful purpose of the University upon delivery to the Authority and the Trustee of a certificate of the chief financial officer of the University demonstrating in reasonable detail that:
(i) For the Fiscal Year immediately preceding the incurring or assumption of the Long-Term Debt as the case may be, the University was in compliance with the rate covenant described under “Rate Covennat” above; and
(ii) The ratio of (A) the Net Revenues of the University for the most recent Fiscal Year for which financial statements are available, to (B) the Maximum Annual Debt Service Requirements with respect to all Long-Term Debt of the University, including for such purpose the Long-Term Debt proposed to be incurred, is at least 120%.
(b) Notwithstanding the foregoing, if no Event of Default hereunder shall have occurred and be continuing, the University may incur or assume Long-Term Debt without complying with the debt incurring tests provided in subsection (a) above:
(i) if such Long-Term Debt is issued to finance the acquisition or construction of any revenue producing facility and the University shall deliver to the Authority and the Trustee a Certificate of an Accountant or a Consultant to the effect that, for each of the two Fiscal Years of the University following the later of the date of issuance of such Long-Term Debt or the date through which interest on such Long-Term Debt is capitalized from the proceeds of such Long-Term Debt, the ratio of (A) the projected Net Revenues of the University, to (B) the Maximum Annual Debt Service Requirements with respect to all Long-Term Debt of the University, including for such purpose the Long-Term Debt proposed to be incurred, is at least 120%;
(ii) if such Long-Term Debt (A) is issued for the purpose of refunding, defeasing or otherwise retiring other Long-Term Debt, and either (B) will not increase the Maximum Annual Debt Service Requirement of all Long-Term Debt by more than 10%, or (C) is incurred for the purpose of replacing any Long-Term Debt bearing interest at a variable interest rate with Long-Term Debt bearing interest at a fixed rate of interest; or
(iii) if such Long-Term Debt is issued to finance the acquisition of equipment and such Long-Term Debt is either unsecured or secured solely by a purchase money security interest in the equipment acquired; or
(iv) otherwise, if the principal amount of such Long-Term Debt incurred in accordance with this clause (iv) shall not exceed the greater of $2,000,000 or 10% of the total unrestricted revenues of the University for the most recent Fiscal Year for which audited financial statements are available; provided however, that at no time shall the total amount of Outstanding Long-Term Debt issued under this paragraph (b)(iv) exceed $8,000,000.
If, at any time, any Long-Term Debt previously incurred as described in this paragraph (b) is included in the calculations used to demonstrate compliance with subsection (a) above, such Long-Term Debt shall no longer be considered incurred under this subsection, C-30
(c) The University may from time to time also incur Subordinated Indebtedness and Non-Recourse Debt without complying with the debt incurring tests above, provided that the principal amount of any Subordinated Indebtedness or Non-Recourse Debt incurred in any Fiscal Year will not exceed 20% of the University’s total unrestricted revenues for the Fiscal Year preceding such incurrence.
(d) The University may enter into a Hedge Agreement without complying with the debt incurring tests above, provided that, in the case of any Hedge Agreement entered into for the purpose of limiting interest rate risk with respect to Long-Term Debt either proposed to be incurred or then Outstanding, the Debt Service Requirements of the University will be adjusted for the related Indebtedness to give effect to the Hedge Agreement in such manner, and to such extent, if any, as may be required by Generally Accepted Accounting Principles or, in the absence of any such requirements under Generally Accepted Accounting Principles, as may be stated in a certificate of the chief financial officer of the University (which certificate will be delivered concurrently with any certificate required in connection with the incurrence of the related Long-Term Debt) as necessary to present fairly the reasonably expected Debt Service Requirements of the University taking into account the Hedge Agreement.
(e) The University may, from time to time, incur or assume Short-Term Debt in an amount not exceeding at any time 20% of the total unrestricted revenues for the most recent Fiscal Year for which audited financial statements are available; provided that, for a period of thirty consecutive days in every Fiscal Year, the University will have no outstanding Short-Term Debt.
The provisions of the Series 2016 Loan Agreement summarized in this section are not mutually exclusive, but may be applied to the incurrence of any particular Indebtedness as the University may elect.
Additional Provisions for Certain Forms of Indebtedness
Amounts due on certain forms of the University’s Long-Term Debt are to be calculated as follows:
(a) The principal amount of, and the Debt Service Requirements for, any Indebtedness incurred by the University by reason of its guarantee of any Indebtedness of another Person will be deemed equal to a percentage of such amounts as follows:
(i) if the University has not been required at any time in the then-current Fiscal Year or the two most recently completed Fiscal Years of the University to make any payment in respect of the guaranteed Indebtedness, then (A) 0%, if the debt service coverage ratio (calculated in substantially the same manner as the Debt Service Coverage Ratio) of the primary obligor with respect to the guaranteed debt has been at least 110% for its three most recently completed fiscal years, or (B) 20%, otherwise; and
(ii) if the University has been required at any time in the then-current Fiscal Year or the two most recently completed Fiscal Years of the University to make any payment in respect of the guaranteed Indebtedness, then 100%.
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(b) The interest component of any forecasted (but not historical) Debt Service Requirements on any Indebtedness bearing interest at a floating or variable rate will be calculated based upon an assumed fixed rate of interest equal the most recent one year average of an index most closely approximating the applicable floating rate methodology or a comparable rate associated with the applicable variable rate methodology associated with a related index or provided by an investment banking firm able to calculate such proposed rate.
(c) The interest component of any Debt Service Requirements on any Indebtedness with respect to which the University receives any federal, state or local governmental interest subsidy will be reduced by the amount, or reasonably anticipated amount for any future period, of any such subsidy.
(d) The future Debt Service Requirements for any non-amortizing Long-Term Debt (“Balloon Debt”) may, at the option of the University, be calculated by amortizing the principal amount either (as applicable):
(i) with level debt service payments over a period equal to the lesser of the term of the Balloon Debt or 20 years;
(ii) in accordance with a schedule of deposits to a sinking fund established therefor pursuant to the terms of such Balloon Debt or separately by the University at or subsequent to the time of incurrence of such Balloon Debt, as set forth in a certificate of the chief financial officer of the University;
(iii) in the case of Balloon Debt secured by or payable from any letter of credit, line of credit or other third-party obligation, as specified by the terms of any undertaking by the University with respect to reimbursement amounts due in respect of such letter of credit, line of credit or other third-party obligation; or
(iv) in the case of Balloon Debt for which the University has obtained a binding commitment to refinance, as specified in such binding commitment.
Security for Indebtedness
Any Long-Term Debt or Short-Term Debt incurred or assumed as permitted under the Series 2016 Loan Agreement, as described under “THE SERIES 2016 LOAN AGREEMENT – Restrictions on Indebtedness” above, may be secured only as follows:
(a) Long-Term Debt may be secured:
(i) by a lien on and security interest in the Pledged University Revenues ranking on a parity (except as provided in clause (c) below) with the lien and security interest granted herein; or
(ii) by a lien or mortgage upon any real property of the University provided that either (A) a parity lien on such property is granted in favor of the Trustee to secure the University’s payment obligations hereunder with respect to the Series 2016 Bonds in accordance with subsection (iii) below, or (B) the Long-Term Debt to be secured by such
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lien or mortgage is incurred solely for the purpose of financing the costs of acquiring the real property encumbered by such lien or mortgage (i.e. a purchase money mortgage); or
(iii) with respect to Long-Term Debt incurred as described in clause (b)(ii) under “Restrictions on Indebtedness” above, by a purchase money security interest in the equipment acquired with the proceeds of such Long-Term Debt; or
(iv) in the case of Subsidized Loans, by a security interest in that portion of the Pledged University Revenues derived from the specific facilities pledged to secure such obligations prior to any security interest therein of the Authority securing the obligations of the University hereunder.
(b) With respect to any Parity Indebtedness incurred in accordance with subsection (a) above: (i) if the University grants any lien on or security interest in any part of the University Facilities or other property in addition to the Pledged University Revenues, the University is required to grant to the Trustee a mortgage and/or security interest covering the same property of equal priority; and (ii) the documents providing for the repayment of and security for the Parity Indebtedness must provide that: (1) an Event of Default under the Series 2016 Loan Agreement or under the Series 2016 Indenture will constitute a default under such documents; and (2) upon the occurrence of a default in respect of the Parity Indebtedness, all Pledged University Revenues are to be paid over to and collected by the Collateral Agent, for pro rata application to such Parity Indebtedness and the obligations under the Series 2016 Loan Agreement; in connection with the incurrence by the University of any additional Parity Indebtedness, the University and the lender under the Parity Indebtedness to be incurred are to enter into an appropriate amendment or supplement to the Intercreditor Agreement, in form and substance reasonably satisfactory to the Trustee, providing for the collection and application of the Pledged University Revenues by the Collateral Agent and such lender upon the occurrence of an Event of Default.
(c) Short-Term Debt may be secured solely: (i) by a purchase money security interest in personal property acquired with the proceeds; or (ii) by a lien or mortgage against any real or personal property not constituting the University Facilities; or (iii) by a security interest in the Pledged University Revenues on a parity with that of the Authority, provided that the amount of such Short-Term Debt so secured alone or in the aggregate at any time outstanding is not to exceed 20% of the total unrestricted operating revenues of the University for the prior Fiscal Year; or (iv) by a security interest in the Pledged University Revenues subordinate to that of the Authority under the Series 2016 Loan Agreement.
(d) The obligations of the University with respect to letters of credit, lines of credit or other third-party commitments securing or providing for payment of any Outstanding Indebtedness may be secured by liens or security interests in favor of the issuer thereof as are otherwise permitted under the Series 2016 Loan Agreement to be created to secure the applicable Indebtedness (whether or not such liens or security interests secure the applicable Indebtedness).
(e) The obligations of the University with respect to any Hedge Agreement may be secured by liens or security interests in favor of the counterparty thereunder as are otherwise
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created to secure the specific Long-Term Debt with respect to which such Hedge Agreement is entered into.
(f) Subordinated Indebtedness may be secured by any lien upon or security interest in property of the University subordinated to the lien or security interest in the same property granted to secure the University’s obligations under the Series 2016 Indenture.
(g) The foregoing may not be deemed to prohibit the establishment pursuant to any financing documents of any funds to be held solely as security for any Long-Term Debt or Short- Term Debt incurred thereunder by the University or the exercise of any rights and remedies with respect thereto; provided that any obligation of the University to make deposits into any such fund may be secured only if and to the extent permitted above. Without limiting the generality of the foregoing, the Funds established under the Series 2016 Indenture may not secure any Indebtedness other than the Series 2016 Bonds.
Student Loan Guarantees
The University may incur obligations in the form of Student Loan Guarantees which meet the following criteria upon compliance with the following requirements:
(a) The loans to students shall be made pursuant to a program, whether governmental or privately sponsored, for the purpose of providing aid to students for tuition, room and/or board, or other expenses associated with the attendance by the student at the University and which program shall require that the University execute its Student Loan Guarantee.
(b) In the case of a program which is fully-funded, no part of the obligations guaranteed by the University shall constitute Long-Term Debt of the University. A program shall be deemed to be “fully-funded” if the assets of the program are at least equal to its liabilities, without regard to the guarantee by the University. In determining the assets of the program, full effect must be given to anticipated losses on student repayments to the extent not insured and due provision shall have been made to cover any shortfall between the principal amount of the obligations and the proceeds thereof (i.e., “non-asset bonds”). The plan may be made fully-funded by deposits, bank letters of credit or other credit support facilities provided by the University or others.
(c) To the extent that a program is not fully-funded as provided above, the amount by which the liabilities exceed the assets shall be determined and such amount shall constitute Long-Term Debt of the University for all purposes of the Series 2016 Loan Agreement and the proportionate part of the Debt Service Requirements on such obligations represented by such deficiency shall be deemed to be Debt Service Requirements on Long-Term Debt. A program which at its commencement is not fully-funded may nonetheless be demonstrated to have become fully-funded at a later date at which time there shall cease to be any Long-Term Debt attributable to such Student Loan Guarantees so long as it continues to be fully-funded.
(d) The fully-funded status of a program or the extent to which a program is not fully- funded shall be determined by a certificate of the Pennsylvania Higher Education Assistance Authority or other issuing governmental authority if such certificate be obtainable, or in the alternative, shall be certified to by a Consultant, which may be the Accountant regularly retained C-34 by the University, which certificate in any case shall set forth in full the basis of its determination.
(e) If a Consultant’s certificate or certificate of the issuing agency is not available, as provided above, the extent to which the principal amount of the Student Loan Guarantees shall be considered Long-Term Debt shall be determined by multiplying the principal amount of such Guarantees by the average default ratio, during the three Fiscal Years preceding such Guarantees, for university students participating in United States Government guaranteed student loans programs.
(f) The guarantee by the University may be secured only by a lien or pledge upon Pledged University Revenues subordinate and junior to the pledge of Pledged University Revenues securing the University’s obligations with respect to the Series 2016 Bonds.
Transfer and Release of Property
Except as specified below, the University covenants that it will not, except as authorized by certain sections of the Series 2016 Loan Agreement, transfer or permit the transfer of any of the University Facilities or any in hereof therein or part thereof, except for Permitted Encumbrances. The University may:
(a) from time to time, remove, sell or otherwise dispose of University Facilities which have been replaced in the ordinary course of business, are related to the delivery of any particular service that the University no longer provides or are otherwise obsolete or unnecessary;
(b) in any Fiscal Year, remove, sell or otherwise dispose of any University Facilities, the book value of which during any Fiscal Year does not exceed 10% of the net book value of the University’s property, plant and equipment as shown on the most recently available audited financial statements of the University; and
(c) transfer, sell or otherwise dispose of University Facilities for fair value.
Any property, fixtures or equipment received or installed as replacements to removed property, fixtures, or equipment which constituted part of the Project Facilities shall be a part of the Project Facilities.
Events of Default and Remedies
An “Event of Default” under the Series 2016 Loan Agreement will occur upon the happening of any of the following:
(a) if the University fails to make any required payment under the Series 2016 Loan Agreement in respect of the principal or Redemption Price of, or interest on the Series 2016 Bonds;
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(b) if the University fails to make any other payment required by the Series 2016 Loan Agreement after the Authority or the Trustee gives notice that such other payment is due and unpaid;
(c) if the University fails to perform any of its other covenants or fails to perform any of its obligations hereunder and such failure continues for sixty (60) days after the Authority or the Trustee gives the University notice thereof; provided, however, that if such performance requires work to be done, actions to be taken, or conditions to be remedied, which by their nature cannot reasonably be done, taken or remedied, as the case may be, within such sixty (60) day period, no Event of Default shall be deemed to have occurred or to exist if, and so long as, the University shall commence such performance within such sixty (60) day period and shall diligently and continuously prosecute the same to completion;
(d) if the University shall (i) admit in writing its inability to pay its debts as they become due; or (ii) file a petition in bankruptcy or for reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under the bankruptcy code of the United States of America as now or in the future amended or any other similar present or future federal or state statute or regulation, or file a pleading asking for such relief; or (iii) make an assignment for the benefit of creditors; or (iv) consent to the appointment of a trustee, receiver or liquidator for all or a major portion of its property or fails to have the appointment of any trustee, receiver or liquidator made without the University’s consent or acquiescence, vacated or set aside within 90 days; or (v) be finally adjudicated as bankrupt or insolvent under any federal or state law; or (vi) be subject to any proceeding, or suffer the entry of a final and nonappealable court order, under any federal or state law appointing a receiver, trustee or liquidator for all or a major part of its property or ordering the winding-up or liquidation of its affairs, approving a petition filed against it under the United States Bankruptcy Code, as now or in the future amended, which order or proceeding, if not consented to by it, is not dismissed, vacated, denied, set aside or stayed in 90 days after the day of entry or commencement; or (vii) suffer a writ or warrant of attachment or any similar process to be issued by any court against all or any substantial portion of its property, unless such writ or warrant of attachment or any similar process is not contested, stayed, or is not released within 90 days after the final entry or levy or after any contest is finally adjudicated or any stay is vacated or set aside;
(e) if an Event of Default has occurred and is continuing under the Series 2016 Indenture; or
(f) if any Event of Default has occurred and is continuing, or an acceleration of the entire amount due by reason of any event of default has occurred, under any instrument evidencing any Parity Indebtedness.
Notice of Certain Defaults; Opportunity to Cure Such Defaults.
(a) No default described in clause (a) under “Events of Default” above shall constitute an Event of Default if the University’s failure to make any payment due under the Series 2016 Loan Agreement is cured within 10 days after the due date of the payment; provided, however, that in no event shall such cure period extend beyond the date the payment is due to the Holders of the Series 2016 Bonds.
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(b) No described in clause (b) under “Events of Default” above shall constitute an Event of Default until notice of such default by registered or certified mail or by overnight delivery service shall be given to the University by the Authority or the Trustee and the University shall have had 30 days after receipt of such notice to correct the default and shall not have corrected it.
Remedies on Default
If any Event of Default under the Series 2016 Loan Agreement shall have occurred and be continuing, then the Trustee, as assignee or the Authority, may take one or any combination of the following remedial steps:
(i) If the Trustee has declared the Series 2016 Bonds immediately due and payable pursuant to the Series 2016 Indenture, by written notice to the University, demand payment of all amounts due and payable under the Series 2016 Loan Agreement in an amount equal to the principal of the Series 2016 Bonds due and payable plus all unpaid interest accrued thereon, whereupon the same shall become immediately due and payable; or
(ii) take whatever action at law or in equity as may appear necessary or desirable to collect the amounts then due and thereafter to become due, or to enforce performance and observance of any obligation, agreement or covenant of the University under the Series 2016 Loan Agreement or under the Series 2016 Indenture.
In addition to the above remedies, if the University commits a breach of the Series 2016 Loan Agreement, the Authority or the Trustee shall have the right and remedy, without posting bond or other security, to have the provisions of the Series 2016 Loan Agreement specifically enforced by any court having equity jurisdiction, it being acknowledged and agreed that any such breach will cause irreparable injury to the Authority and that money damages will not provide an adequate remedy therefor.
Subject to the terms of the Intercreditor Agreement, any amounts collected pursuant to action taken under the Series 2016 Loan Agreement shall be paid into the Debt Service Fund and applied in accordance with the provisions of the Series 2016 Indenture.
Remedies Not Exclusive
Further, the rights and remedies reserved by the Authority (including the Trustee as assignee of the Authority’s rights under the Series 2016 Loan Agreement) and the rights of the University under the Series 2016 Loan Agreement and those provided by law are cumulative and continuing rights. No one of them will be exhausted by the exercise thereof on one or more occasions. The Authority (including the Trustee as assignee of the Authority’s rights under the Series 2016 Loan Agreement) and the University are each be entitled to specific performance and injunctive or other equitable relief for any breach or threatened breach of any of the provisions of the Series 2016 Loan Agreement, notwithstanding availability of an adequate remedy at law, and each party hereby waives the right to raise such defense in any proceeding in equity.
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Amendments
The Authority and the University may amend the Series 2016 Loan Agreement in writing only for the following purposes: (a) to cure any ambiguity or to cure, correct or supplement any defect, omission or inconsistent provision contained in the Series 2016 Loan Agreement; (b) to grant to or confer upon the Authority and the Trustee any additional rights, remedies, powers, authority or security that lawfully may be granted to or conferred upon it; (c) to add additional covenants of the University or to surrender any right or power conferred upon the University; or (d) to reflect a change in applicable law; or (e) to reflect changes in Generally Accepted Accounting Principles as the result of the issuance of financial accounting standards or audit guidelines, or revisions thereto by the Financial Accounting Standards Board or other similar organization promulgating Generally Accepted Accounting Principles or generally accepted auditing standards or in connection with the preparation of financial statements for entities such as the University, if there shall be delivered to the Trustee, together with the amendment, a certificate of the University’s Accountant setting forth the nature of the changed accounting or auditing standard and that the amendment to the Series 2016 Loan Agreement is required to conform to the new or revised standards; (f) to make such changes as may be necessary to comply with the Code; (g) to make such changes as may accomplish a merger, consolidation, reorganization or incorporation of the University to the extent or consistent wit the provisions contained in the Series 2016 Loan Agreement; or (h) to set forth such other matters as will not materially and adversely affect the Holders of the Series 2016 Bonds Outstanding,
All other amendments must be approved by the Holders in the same manner and to the same extent as is required in the Series 2016 Indenture. In executing any amendment to the Series 2016 Loan Agreement, the Trustee shall be fully protected by an opinion of Counsel that such amendment is permitted and has been duly authorized and that all things necessary to make it a valid and binding agreement have been done, and the Trustee shall not be required to execute any amendment until such opinion of Counsel is delivered to it.
Exculpation and Indemnification
Neither the Authority nor its members, officers, employees, or agents will be accountable to the University for any action taken or omitted by it or its members, officers, employees and agents in good faith and reasonably believed by it or them to be authorized or within the discretion or rights or powers conferred. The Authority will be protected in its or their acting upon any paper or document believed by it or them to be genuine, and it or they may conclusively rely upon the advice of Counsel and may (but need not) require further evidence of any fact or matter before taking any action. No recourse will be had by the University for any claims based on the Series 2016 Loan Agreement on the Series 2016 Indenture against any member, officer, employee or agent of the Authority alleging personal liability on the part of such person.
The University will also indemnify Trustee and its directors, officers, agents and employees harmless from and against any and all liabilities, losses, damages, fines, suits, actions, demands, penalties, costs and expenses, including out-of-pocket, incidental expenses, legal fees and expenses, the allocated costs and expenses of in-house counsel and legal staff and the costs and expenses of defending or preparing to defend against any claim that may arise from any
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instruction or other direction upon which the Trustee is authorized to rely pursuant to the terms of the Series 2016 Loan Agreement, the Intercreditor Agreement, and the Series 2016 Indenture.
THE INTERCREDITOR AGREEMENT
General
Under the Intercreditor Agreement, the University and each Parity Secured Party will agree that the grant by the University of a lien on and security interest in the Pledged University Revenues to each Parity Secured Party will secure the indebtedness of the University under each Parity Debt Agreement equally and ratably in accordance with the Intercreditor Agreement.
Investment of Pledged University Revenues
Under the Intercreditor Agreement, the Collateral Agent is authorized to invest the Pledged University Revenues deposited with it in Qualified Investments as defined in the 2016 Indenture at the written direction of the University. All such investments and the interest and income received thereon and the net proceeds on the sale or redemption thereof shall be held in the collateral account established by the Collateral Agent to hold the Pledged University Revenues. The Collateral Agent may liquidate investments prior to maturity to make any distributions required by the terms of the Intercreditor Agreement. The Collateral Agent shall not be liable for any loss on any investment that is made or liquidated in accordance with the Intercreditor Agreement.
Application of Unrestricted Revenues
Upon the happening of any Event of Default, the University will deliver or cause to be delivered its Unrestricted Revenues to the Collateral Agent under the Intercreditor Agreement, to be applied for the equal and ratable benefit of the Holders of the Series 2016 Bonds. The Collateral Agent will apply the available the Pledged University Revenues to the payment of the University’s obligations under each Parity Debt Agreement, respectively, on a pro rata basis in proportion to the aggregate amount due in respect of each Series 2016 Bonds in proportion that the amount due under each Parity Debt Agreement bears to the total amount due under all Parity Debt Agreements (less, in each case, the amount of any available funds pledged exclusively for the benefit of the Parity Secured Party, including, without limitation, any debt service fund or debt service reserve fund securing any applicable Parity Indebtedness).
Each Parity Secured Party agrees in the Intercreditor Agreement to promptly give notice to each other Parity Secured Party of the occurrence of any Event of Default or other event which with the giving of notice or the passage of time or both would be an Event of Default of which it has knowledge in accordance with the terms of any Parity Debt Agreement.
Future Parity Debt
The University will cause each holder of additional Parity Indebtedness of the University incurred in the future to enter into an amendment or supplement to the Intercreditor Agreement,
C-39 or a new intercreditor agreement, among all of the holders of Parity Indebtedness of the University and in form and substance reasonably satisfactory to such parties, pursuant to which such holder will agree to the collection and distribution of the Pledged University Revenues for the equal and ratable benefit and security of all holders of Parity Indebtedness in the manner provided under the Intercreditor Agreement.
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APPENDIX D
PROPOSED FORM OF OPINION OF BOND COUNSEL
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[PROPOSED FORM OF OPINION OF BOND COUNSEL]
January __, 2016
Re: $9,960,000, aggregate principal amount, Montgomery County Higher Education and Health Authority, Arcadia University Revenue Bonds, Series of 2016
To the Purchasers of the Within-Described Bonds:
We have served as bond counsel in connection with the issuance by the Montgomery County Higher Education and Health Authority (“Authority”), a body corporate and politic created pursuant to the Pennsylvania Municipality Authorities Act, 53 Pa. C.S.A. § 5601 et seq., which codifies and amends the Municipality Authorities Act of 1945, as amended and supplemented (“Act”), of $9,960,000, aggregate principal amount, Arcadia University Revenue Bonds, Series of 2016 (“2016 Bonds”).
The 2016 Bonds are issued pursuant to the Act, a resolution adopted by the Authority on March 9, 2015, as amended on April 13, 2015 (collectively, the “Resolution”), and a Series 2016 Trust Indenture, dated as of January 1, 2016 (the “Indenture”), between the Authority and The Bank of New York Mellon Trust Company, N.A., as trustee (“Trustee”).
The proceeds of the 2016 Bonds, together with certain other funds available for the purpose, will be applied to finance: (a) the current refunding of all or a portion of the Authority’s Arcadia University Revenue Refunding Bonds, Second Series of 2006; and (b) the payment of costs and expenses incidental to issuing the 2016 Bonds.
The proceeds of the 2016 Bonds will be loaned by the Authority to Arcadia University (the “University”) pursuant to a Series 2016 Loan and Security Agreement, dated as of January 1, 2016 (the “Loan Agreement”), between the Authority and the University. The Authority has assigned all of its right, title and interest in the Loan Agreement (except for the right to give approvals and consents, the right to receive notices, the right to execute modifications, supplements and amendments to the Loan Agreement, the right to pursue remedies, the right to payment of certain expenses and the right to indemnification) to the Trustee for the benefit of Holders (as defined in the Indenture).
The obligations of the University under the Loan Agreement will be secured by a lien on and security interest in the University’s Pledged University Revenues (as defined in the Loan Agreement) as provided in the Loan Agreement.
As the basis for this opinion we have examined such matters of law and such documents, certifications, instruments and records as we deemed necessary to enable us to render the opinion set forth below, including the Act, applicable provisions of the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder or made applicable with respect thereto (collectively, “Code”), and original counterparts or certified copies of the Resolution, the Indenture, the Loan Agreement, the certificates of certain Authority officials having responsibility for issuing the 2016 Bonds given pursuant to the Code, certifications by the University as to certain matters under the Code, opinions as to various matters delivered by the Authority’s counsel and counsel to the University, and the other documents,
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To the Purchasers of the Within-Described Bonds January __, 2016 Page 2
certifications, instruments and records listed in the Closing Agenda and Index in respect of the 2016 Bonds filed this date with the Trustee. We have also examined a fully executed and authenticated 2016 Bond or a true copy thereof. In rendering this opinion, we have relied on the opinions referred to above as to all matters of fact and law set forth therein, and on the genuineness, truthfulness and completeness of all documentation examined as referred to above.
Based on the foregoing and the other qualifications and limitations set forth herein, we are of the opinion that:
1. The Authority is validly existing under the Act, and at all relevant times had and has full power and authority thereunder to adopt the Resolution, to execute the Indenture and the Loan Agreement, to perform its obligations thereunder, and to issue the 2016 Bonds.
2. The Indenture and the Loan Agreement have been duly authorized, executed and delivered by the Authority, and the obligations of the Authority thereunder are valid and binding and enforceable in accordance with the respective terms thereof, except as enforcement may be affected by bankruptcy, insolvency, reorganization, moratorium or other similar laws or legal or equitable principles affecting the enforcement of creditors’ rights (“Creditors’ Rights Limitations”).
3. The 2016 Bonds have been duly authorized, executed and issued by the Authority, and are valid and binding special, limited obligations of the Authority, payable solely from the sources described in the Indenture, and enforceable in accordance with their terms, except as enforcement may be affected by Creditors’ Rights Limitations, and the 2016 Bonds are entitled to the benefit and security of the Indenture to the extent provided therein.
4. Under the laws of the Commonwealth of Pennsylvania as enacted and construed on the date hereof, interest on the 2016 Bonds is exempt from Pennsylvania personal income tax and Pennsylvania corporate net income tax and the 2016 Bonds are exempt from personal property taxes in the Commonwealth of Pennsylvania; however, under the laws of the Commonwealth of Pennsylvania as enacted and construed on the date hereof, any profits, gains or income derived from the sale, exchange or other disposition of the 2016 Bonds will be subject to Commonwealth of Pennsylvania taxes and local taxes within the Commonwealth of Pennsylvania.
5. Under existing statutes, regulations, rulings and court decisions, interest on the 2016 Bonds will not be includible in the gross income of the holders thereof for federal income tax purposes, assuming continuing compliance by the Authority and the University, respectively, with the requirements of the Code. Interest on the 2016 Bonds will not be a specific preference item for purposes of computing the federal alternative minimum tax (“AMT”); however, interest on the 2016 Bonds held by certain corporations is included in the computation of “adjusted current earnings”, a portion of which is taken into account in determining the AMT imposed on such corporations.
In rendering this opinion, we have assumed compliance by the Authority and the University, respectively, with the covenants and representations contained in the Tax Exemption Certificate and Agreement executed on the date hereof, the Indenture and the Loan Agreement, respectively, relating to actions to be taken by the Authority and the University, respectively, after the issuance of the 2016 Bonds necessary to effect or maintain the exclusion from gross income of the interest on the 2016 Bonds for federal income tax purposes. These covenants and representations relate to, inter alia, the use of and investment of proceeds of the 2016 Bonds and rebate to the United States
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To the Purchasers of the Within-Described Bonds January __, 2016 Page 3
Department of Treasury of specified arbitrage earnings, if required. Failure to comply with such covenants could result in the interest on the 2016 Bonds becoming includible in gross income for federal income tax purposes from the date of issuance of the 2016 Bonds.
We call your attention to the fact that the 2016 Bonds are special, limited obligations of the Authority, and neither the faith nor credit of the Commonwealth of Pennsylvania or of any political subdivision thereof is pledged to the payment of the principal of, premium, if any, or interest on the 2016 Bonds. The Authority has no taxing power.
We express no opinion as to any matter not set forth in the numbered paragraphs herein. This opinion is rendered on the basis of federal law and the laws of the Commonwealth of Pennsylvania as enacted and construed on the date hereof. This opinion is given as of the date hereof and we assume no obligation to supplement this opinion to reflect changes in the law that may hereafter occur or changes in facts or circumstances that may hereafter come to our attention. Without limiting the generality of the foregoing, we express no opinion with respect to and assume no responsibility for, the accuracy, adequacy or completeness of the preliminary official statement or the official statement prepared in respect of the offering of the 2016 Bonds, and make no representation that we have independently verified the contents thereof.
Very truly yours,
ECKERT SEAMANS CHERIN & MELLOTT, LLC
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APPENDIX E
FORM OF CONTINUING DISCLOSURE AGREEMENT
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CONTINUING DISCLOSURE AGREEMENT
This CONTINUING DISCLOSURE AGREEMENT (this “Agreement”), dated as of January 1, 2016 is executed and delivered by ARCADIA UNIVERSITY, a Pennsylvania not-for-profit corporation (the “University”), in connection with the issuance by the Montgomery County Higher Education and Health Authority (the “Authority”) of $9,960,000 aggregate principal amount of its Arcadia University Revenue Bonds, Series of 2016 ( the “Bonds”). The Bonds are being issued pursuant to a Series 2016 Trust Indenture dated as of January 1, 2016 (the “Indenture”) between the Authority and The Bank of New York Mellon Trust Company, N.A., as Trustee (the “Trustee”). The proceeds of the Bonds are being loaned to the University pursuant to a Series 2016 Loan and Security Agreement dated as of January 1, 2016 (the “Loan Agreement”) between the Authority and the University. The University, intending to be legally bound, covenants and agrees as follows for the benefit of the Bondholders (defined below):
Section 1. Purpose of the Continuing Disclosure Agreement. This Agreement is being executed and delivered by the University for the benefit of the Bondholders and in order to assist the Underwriter (defined below) in complying with the Rule (defined below). The University acknowledges that the Authority and the Trustee have undertaken no responsibility with respect to any reports, notices or disclosures provided or required under this Agreement, and have no liability to any Person, including any Bondholder, with respect to any such reports, notices or disclosures.
Section 2. Definitions. In addition to the definitions set forth in the Indenture, which apply to any capitalized term used in this Agreement unless otherwise defined in this Section, the following capitalized terms shall have the meanings indicated below. Other capitalized terms shall have the meanings assigned them in the Loan Agreement.
“Annual Report” shall mean any Annual Report provided by the University pursuant to, and as described in, Sections 3 and 4 of this Agreement.
“Bondholder” or “Holder” of the Bonds shall mean any registered owner of the Bonds or any Person which (i) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any of the Bonds (including Persons holding through any nominee, securities depository or other intermediary) or (ii) is treated as the holder of any of the Bonds for federal income tax purposes.
“Dissemination Agent” means any agent designated as such in writing by the University and which has filed with the University a written acceptance of such designation, and such agent’s successors and assigns.
“EMMA” shall mean the Electronic Municipal Market Access system of the MSRB as provided at http://www.emma.msrb.org, or any similar system that is acceptable to or as may be prescribed by the MSRB for purposes of the Rule and approved by the SEC from time to time. A current list of such systems may be obtained from the SEC at http://www.sec.gov/info/municipal/nrmsir.htm.
“Listed Event” shall mean any of the events listed in Section 5 of this Agreement.
“MSRB” means the Municipal Securities Rulemaking Board established pursuant to Section 15B(b)(1) of the Securities Exchange Act of 1934.
“Official Statement” means the Official Statement dated May 20, 2015, [as supplemented by ______,] used in connection with the sale of the Bonds.
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“Rule” shall mean Rule 15c2-12(b)(5) adopted by the SEC under the Securities Exchange Act of 1934, as the same may be amended from time to time.
“SEC” shall mean the Securities and Exchange Commission, or any successor body thereto.
“Underwriter” shall mean Merrill Lynch, Pierce, Fenner & Smith Incorporated.
Section 3. Content of Annual Reports. The University’s Annual Report shall contain:
(a) a copy of its annual financial statements prepared in accordance with generally accepted accounting principles and audited by a certified public accountant; and
(b) an update of the information of the type contained in Appendix A to the Official Statement under the following headings, but only with respect to the information in the tables under such headings: “University Enrollment,” “Full-Time Undergraduate Applications and Enrollment,” “Full-Time Graduate Applications and Enrollment,” “Undergraduate Student Fees,” “Institutionally Funded Scholarships,” “Faculty/Employees,” “Statement of Operating Activities,” and “Gifts, Contributions and Grants.”
Section 4. Provision of Annual Reports.
(a) The University shall, within 180 days after the end of each fiscal year (which date is November 27, so long as the University’s fiscal year ends on May 31), commencing with the fiscal year ending May 31, 2016, provide to the MSRB an Annual Report. In each case, the Annual Report may be submitted as a single document or as separate documents comprising a package, and may cross- reference other information provided pursuant to Section 3 of this Agreement. Notwithstanding the foregoing, the audited financial statements of the University may be submitted separately from the balance of the Annual Report when such audited financial statements are available. In the event that the audited financial statements are not included with the Annual Report and will be submitted at a later date, the University shall include unaudited financial information in the Annual Report and shall disclose the date on which the audited financial statements will be submitted.
Section 5. Reporting of Listed Events.
(a) In a timely manner not in excess of ten Business Days after the occurrence of the event, the University shall file with the MSRB notice of any of the following events with respect to the Bonds, in substantially the form set forth in Exhibit A hereto:
(1) Principal and interest payment delinquencies;
(2) Non-payment related defaults, if material;
(3) Unscheduled draws on debt service reserves reflecting financial difficulties;
(4) Unscheduled draws on credit enhancements reflecting financial difficulties;
(5) Substitution of credit or liquidity providers, or their failure to perform;
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(6) Adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701–TEB) or other material notices or determinations with respect to the tax status of the Bonds, or other material events affecting the tax status of the Bonds;
(7) Modifications to rights of the Holders of the Bonds, if material;
(8) Bond calls (other than mandatory sinking fund redemptions), if material, and tender offers;
(9) Defeasances;
(10) Release, substitution, or sale of property, if any, securing repayment of the Bonds, if material;
(11) Rating changes;
(12) Bankruptcy, insolvency, receivership or similar event of the University;
(13) The consummation of a merger, consolidation, or acquisition involving the University or the sale of all or substantially all of the assets of the University, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material; and
(14) Appointment of a successor or additional trustee or the change of name of a trustee, if material.
Section 6. Failure to Provide Required Notices. In a timely manner, the University shall give to the Trustee, the Authority and the MSRB notice of any failure by the University to provide any information required pursuant to Section 4 or 5 above within the time limit specified therein.
Section 7. Reports to Trustee. The University shall send to the Trustee copies of any information delivered to the MSRB pursuant to Section 4 or 5 above.
Section 8. Submission of Information. Unless otherwise required by law, all documents provided to the MSRB in compliance with this Agreement shall be provided to the MSRB in an electronic format and shall be accompanied by identifying information, in each case as prescribed by the MSRB. As of the date of this Agreement, the MSRB has established EMMA as its continuing disclosure service for purposes of the Rule, and unless and until otherwise prescribed by the MSRB, all documents provided to the MSRB in compliance with this Agreement shall be submitted through EMMA in the format prescribed by the MSRB.
Section 9. Dissemination Agent. The University may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Agreement, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent.
Section 10. Termination of Agreement. The University’s obligations under this Agreement shall terminate upon the defeasance, prior redemption or payment in full of all of the Bonds. The University shall notify the MSRB that the University’s obligations under this Agreement have terminated. If the University’s obligations under the Loan Agreement are assumed in full by another
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obligated person, as defined in the Rule, such Person shall be responsible for compliance with this Agreement in the same manner as if it were the University, and the University shall have no further responsibility hereunder.
Section 11. Amendment. The University’s obligations under this Agreement may be amended to the extent required or permitted by the Rule, or in connection with a change in the identity, nature or status of the University, or the type of business conducted by it; provided that any such amendment either (i) does not materially impair the interests of Bondholders, in the determination of the Trustee (which may be based on an opinion of Counsel provided to the Trustee at the University’s expense); or (ii) is approved by the Holders of a majority in aggregate principal amount of the Bonds.
Section 12. Additional Information. Nothing in this Agreement shall be deemed to prevent the University from disseminating any other information, using the means of dissemination set forth in this Agreement or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Agreement. If the University chooses to include any information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is specifically required by this Agreement, the University shall have no obligation under this Agreement to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event.
Section 13. Default. In the event of a failure of the University to comply with any provision of this Agreement, the Underwriter or any Bondholder may take such actions as may be necessary and appropriate, including seeking specific performance by court order, to cause the University to comply with its obligations under this Agreement.
Section 14. No Recourse to the Authority; Indemnification. No recourse shall be had for the performance of any obligation, agreement or covenant of the University or the Trustee under this Agreement against the Authority or against any member, official, employee, counsel, consultant and agent of the Authority or any person executing the Bonds.
The University agrees to indemnify and hold harmless the Authority, any member, officer, official, employee, counsel, consultant and agent of the Authority, the Trustee and the Underwriter, and each Person, if any, who has the power, directly or indirectly, to direct or cause the direction of the management and policies of each and any purchase of the Bonds through the ownership of voting securities, by contract or otherwise (collectively called the “Indemnified Parties”), against any and all losses, claims, damages, liabilities or expenses whatsoever caused solely by the University’s failure to perform or observe any of its obligations, agreements or covenants under the terms of this Agreement but only if and insofar as such losses, claims, damages, liabilities or expenses are caused solely by any such failure of the University to perform. In case any action shall be brought against the Indemnified Parties based upon this Agreement and in respect of which indemnity may be sought against the University, the Indemnified Parties shall promptly notify the University in writing. Upon receipt of such notification, the University shall promptly assume the defense of such action, including the retention of counsel, the payment of all expenses in connection with such action and the right to negotiate and settle any such action on behalf of such party. Any Indemnified Party shall have the right to employ separate counsel in any such action and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party unless the employment of such counsel has been specifically authorized by the University, or unless by reason of conflict of interest determined by the written opinion of counsel to any such party, it is necessary for such party to be represented by separate counsel, to be retained by the University, in which case the reasonable fees and expenses of such separate counsel shall be borne by the University. The University shall not be liable for any settlement of any such action effected without its written consent, but if settled with the written consent of the
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University or if there be a final judgment for the plaintiff in any such action with or without written consent, the University agrees to indemnify and hold harmless the Indemnified Parties from and against any loss or liability by reason of such settlement or judgment. Nothing in this paragraph shall require or obligate the University to indemnify or hold harmless the Indemnified Parties from or against any loss, claim, damage, liability or expense caused, in whole or in part, by any gross negligence or willful misconduct of the Indemnified Parties in connection with this Agreement.
Section 15. Beneficiaries. This Agreement shall inure solely to the benefit of the Authority, the Trustee, the Underwriter, the Dissemination Agent, if any, and Bondholders, and shall create no rights in any other person or entity.
Section 16. Governing Law. This Agreement shall be governed by and construed in accordance with the Rule and the laws of the Commonwealth of Pennsylvania.
Section 17. Severability. In case any one or more of the provisions of this Agreement shall for any reason be held to be illegal or invalid, such illegality or invalidity shall not affect any other provision of this Agreement, but this Agreement shall be construed and enforced as if such illegal or invalid provision had not been contained herein.
Section 18. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original as against any party whose signature appears thereon, and all of which shall together constitute one and the same instrument.
ARCADIA UNIVERSITY
By: ______Vice President for Finance and Treasurer
The receipt of the foregoing Continuing Disclosure Agreement is hereby acknowledged:
THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., as Trustee
By: ______Authorized Officer
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EXHIBIT A EVENT NOTICE COVER SHEET
This cover sheet and event notice should be sent to the Municipal Securities Rulemaking Board pursuant to Securities and Exchange Commission Rule 15c2-12(b)(5)(i)(C) and (D).
Issuer’s and/or Other Obligated Person’s Name:
Issuer’s Six-Digit CUSIP Number(s): or Nine-Digit CUSIP Number(s) to which this event notice relates:
Number of Pages of attached to event notice:
Description of Material Events Notice (Check One):
1. ___ Principal and Interest Payment Delinquencies 2. ___ Non-Payment related defaults, if material 3. ___ Unscheduled draws on debt service reserves reflecting financial difficulties 4. ___ Unscheduled draws on credit enhancements reflecting financial difficulties 5. ___ Substitution of credit or liquidity providers, or their failure to perform 6. ___ Adverse tax opinions , the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701–TEB) or other material notices or determinations with respect to the tax status of the Bonds, or other material events affecting the tax status of the Bonds 7. ___ Modifications to rights of the Holders of the Bonds, if material 8. ___ Bond calls other than mandatory sinking fund redemptions), if material, and tender offers 9. ___ Defeasances 10. ___ Release, substitution, or sale of property, if any, securing repayment of the Bonds, if material 11. ___ Rating changes 12. ___ Bankruptcy, insolvency, receivership or similar event of the University 13. ___ The consummation of a merger, consolidation, or acquisition involving the University or the sale of all or substantially all of the assets of the University, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material 14. ___ Appointment of a successor or additional trustee or the change of name of a trustee, if material
I hereby represent that I am authorized by the Issuer or Obligated Person or its agent to distribute this information publicly:
Signature:
Name: Title: Employer: Address:
City, State, Zip Code: Voice Telephone Number: ( )
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