This Preliminary Offering Memorandum and the information contained herein are subject to completion and amendment. The 2016A Bonds may not be sold, nor may offers to buy be accepted, prior to the time this Preliminary Offering Memorandum is delivered in final form. Under no circumstances shall this Preliminary Offering Memorandum constitute an offer to sell or a solicitation of an offer to buy, nor shall there be any sale of the 2016A Bonds, in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. and encumberthePledgedRevenues,allasdescribedherein. See“ National Association;and(5)the2016BBonds.Inaddition, theUniversityhasreservedrighttoincuradditionaldebt evidenced byCreditAgreementsbetweentheUniversity and eachofU.S.BankNationalAssociationWellsFargoBank, and aconfirmationdatedJune28,2007,fortransaction withaneffectivedateofOctober1,2012;(4)twolinescredit 2006,evidenced by a confirmation datedMay 24, June11, 2007,for atransaction2014, withan effectivedate ofOctober 1, rate swaptransactionsbetweentheUniversityandBank ofAmerica,N.A.,underanISDAMasterAgreementdatedas Taxable RevenueBonds(GonzagaUniversityProject), Series2013B(collectively,the“2013Bonds”);(3)twointerest pursuant to which the Authority issued its Revenue Bonds (Gonzaga University Project), Series 2013A and the Authority’s (1) acertainloanagreementpursuanttowhichtheAuthorityissuedits2009BBonds;(2) the provisionsofanintercreditoragreement,PledgedRevenuesalsosecureobligationsUniversity under: of whichtheUniversityhaspledgedcertainitsUnrestrictedGrossRevenues(the“PledgedRevenues”).Subject to Fast AutomatedSecuritiesTransfer. or aboutOctober __, 2016,atthefacilitiesofDTCinNewYork, ortotheBondRegistraronbehalfofDTCby by theircounsel,FosterPepper PLLC,Seattle,Washington.Itisexpectedthatdelivery ofthe2016ABondswilloccuron passed uponfortheUniversity byitsSpecialCounsel,KutakRockLLP,Spokane,Washington, andfortheUnderwriters decision. must readtheentireOfferingMemorandumtoobtain information essentialtothemakingofaninformedinvestment BOOK‑ENTRY ONLY * Preliminary; subjectto change. prices andunderthecircumstancesdescribed“ commencing April1,2017,totheirrespectivedatesofmaturityorearlierredemption. entry form,principalandinterestpaymentswillbemadeasdescribedherein. and transferagent(the“BondRegistrar”)forthe2016ABonds.ForsolongasBondsareheldbyDTC inbook- representing theirinterestinthe 2016A Bonds,exceptasdescribed herein. TheTrusteewill serve as registrar, paying agent multiples thereof within a single maturity and will be in book-entry form only. Purchasers will not receive certificates the 2016ABonds.IndividualpurchasesofBondswillbemadeinprincipalamount$1,000eachor integral as nomineeofTheDepositoryTrustCompany,NewYork,York(“DTC”),whichwillactsecuritiesdepository for Revenue andRefundingTaxableBonds,Series2016B(the“2016BBonds”). to the University’s facilities; and (7) paying all of the costs of issuing the 2016A Bonds and the University’s $35,575,000 (the “2012B Bonds”); (6) paying for the planning, designing, constructing, installing and furnishing of capital improvements 2012A (the“2012ABonds”);(5)redeemingalloftheAuthority’sRevenueBonds(GonzagaUniversityProject),Series 2012B Series 2010A(the“2010ABonds”);(4)redeemingalloftheAuthority’sRevenueBonds(GonzagaUniversityProject), Series 2009B (the“2009BBonds”);(3)redeemingalloftheAuthority’sRefundingRevenueBonds(GonzagaUniversityProject), “2009A Bonds”);(2)redeemingaportionoftheAuthority’sRefundingRevenueBonds(GonzagaUniversityProject),Series Facilities Authority(the“Authority”)RevenueandRefundingBonds(GonzagaUniversityProject),Series2009 dated asofOctober1,2016,betweentheUniversityandU.S.BankNationalAssociation(the“Trustee”). Bonds”), pursuant to an Indenture of Trust (the “Indenture”) 2016A, in the principal amount of $96,625,000* (the “2016A Dated: DateofDelivery M NEW ISSUE atters The obligationsoftheUniversityunderIndentureconstituteageneralobligationtopayment The 2016ABondsareoffered when,asandifissuedacceptedbytheUnderwriters. Certainlegalmatterswillbe This coverpagecontainscertaininformationforquickreference onlyandisnotasummaryofthisissue.Investors The 2016ABondsaresubjecttooptionalandmandatorysinkingfundredemptionpriormaturityatthe The 2016ABondswillaccrueinterestfromtheirdateddate,payablesemiannuallyoneachApril1andOctober 1, The 2016A Bonds will be issued as fully registered bonds under a book-entry system, initially registered to Cede & Co., The proceedsofthe2016ABondswillbeusedforpurposeof:(1)redeemingallWashingtonHigherEducation The CorporationofGonzagaUniversity(the“University”)isissuingitsRevenueandRefundingTaxableBonds,Series Interest onthe2016ABondsisnotexcludedfromgrossincomeforfederaltaxpurposes.See“ ” herein. Barclays
PRELIMINARY OFFERING MEMORANDUM DATED OCTOBER 6, 2016
THE CORPORATION OF GONZAGA UNIVERSITY
Revenue andRefundingTaxableBonds, $96,625,000* Series 2016A T he 2016AB onds S ecurity
– RedemptionProvisions.” Maturity: April1,asshownoninsidecover
for
the 2016AB Piper Jaffray &Co. onds RATINGS: Moody’s:A3 .” (See “ Fitch: A R atings T ax ”)
THE CORPORATION OF GONZAGA UNIVERSITY REVENUE AND REFUNDING TAXABLE BONDS, SERIES 2016A
∗ $96,625,000 ___% Term Bond due April 1, 2046* at yield of ___ CUSIP No.(1) ______.
(1) CUSIP is a registered trademark of the 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 numbers listed above are being provided solely for the convenience of the bondholders, and neither the University nor the Underwriters make any representation with respect to such numbers or undertake any responsibility for their accuracy. The CUSIP numbers are subject to change after the issuance of the 2016A Bonds as a result of various subsequent actions including, but not limited to, a refunding in whole or in part of the 2016A Bonds. * Preliminary; subject to change.
∗ Preliminary; subject to change.
THE INFORMATION SET FORTH HEREIN HAS BEEN FURNISHED BY THE UNIVERSITY AND CERTAIN OTHER SOURCES THAT THE UNIVERSITY BELIEVES TO BE RELIABLE BUT IS NOT GUARANTEED AS TO ACCURACY OR COMPLETENESS BY, AND IS NOT TO BE CONSTRUED AS A REPRESENTATION BY, THE UNDERWRITERS. THE INFORMATION AND EXPRESSIONS OF OPINION CONTAINED HEREIN ARE SUBJECT TO CHANGE WITHOUT NOTICE. IN CONNECTION WITH THE OFFERING OF THE 2016A BONDS, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE 2016A BONDS AT LEVELS ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. NO DEALER, BROKER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED BY THE UNIVERSITY OR THE UNDERWRITERS TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THE OFFERING OF THE 2016A BONDS OTHER THAN THOSE CONTAINED HEREIN; AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE UNIVERSITY OR THE UNDERWRITERS. THIS OFFERING MEMORANDUM IS NOT TO BE CONSTRUED AS A CONTRACT WITH THE PURCHASERS OF THE 2016A BONDS. STATEMENTS IN THIS OFFERING MEMORANDUM THAT ARE NOT HISTORICAL INFORMATION ARE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF THE FEDERAL SECURITIES LAWS. THESE FORWARD-LOOKING STATEMENTS INCLUDE THE DISCUSSIONS OF THE UNIVERSITY’S EXPECTATIONS REGARDING THE OPERATIONS OF THE UNIVERSITY AND OTHER MATTERS. IN THIS RESPECT, THE WORDS “ESTIMATE,” “PROJECT,” “ANTICIPATE,” “EXPECT,” “INTEND,” “BELIEVE,” “FORECAST” AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. ALTHOUGH THE UNIVERSITY BELIEVES ITS EXPECTATIONS REGARDING FUTURE EVENTS ARE BASED ON REASONABLE ASSUMPTIONS WITHIN THE SCOPE OF ITS KNOWLEDGE, THE UNIVERSITY CAN GIVE NO ASSURANCE THAT ITS GOALS WILL BE ACHIEVED OR THAT ITS EXPECTATIONS REGARDING FUTURE DEVELOPMENTS WILL BE REALIZED. THE FORWARD-LOOKING STATEMENTS IN THIS OFFERING MEMORANDUM, INCLUDING THOSE SET FORTH IN APPENDIX A, ARE SUBJECT TO RISKS AND UNCERTAINTIES THAT COULD CAUSE THE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED BY THESE STATEMENTS. THE UNDERWRITERS HAVE PROVIDED THE FOLLOWING SENTENCE FOR INCLUSION IN THIS OFFERING MEMORANDUM. THE UNDERWRITERS HAVE REVIEWED THE INFORMATION IN THIS OFFERING MEMORANDUM IN ACCORDANCE WITH, AND AS PART OF, THEIR RESPONSIBILITIES TO INVESTORS UNDER THE FEDERAL SECURITIES LAWS AS APPLIED TO THE FACTS AND CIRCUMSTANCES OF THIS TRANSACTION, BUT THE UNDERWRITERS DO NOT GUARANTEE THE ACCURACY OR COMPLETENESS OF SUCH INFORMATION. THE 2016A BONDS HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION BY REASON OF THE PROVISIONS OF SECTION 3(A)(4) OF THE SECURITIES ACT OF 1933, AS AMENDED. FOR STATE OF WASHINGTON RESIDENTS: (1) OFFERS AND SALES OF THE 2016A BONDS TO RESIDENTS OF THE STATE OF WASHINGTON MAY BE MADE (A) ONLY IF THE WASHINGTON ADMINISTRATOR OF SECURITIES DOES NOT DISALLOW THE EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF WASHINGTON WITHIN TEN FULL BUSINESS DAYS FOLLOWING A NOTICE FILING WITH RESPECT TO THE 2016A BONDS AND (B) THEREAFTER, ONLY TO PERSONS WHO, PRIOR TO THE DATE OF THIS OFFERING MEMORANDUM, WERE MEMBERS OF, CONTRIBUTORS TO, OR LISTED AS PARTICIPANTS IN, THE UNIVERSITY, OR THEIR RELATIVES. (2) THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF THE UNIVERSITY AS OF AND FOR THE FISCAL YEARS ENDED MAY 31, 2016 AND MAY 31, 2015, ARE INCLUDED AS APPENDIX B TO THIS OFFERING MEMORANDUM. (3) RECEIPT OF NOTICE OF EXEMPTION BY THE WASHINGTON ADMINISTRATOR OF SECURITIES DOES NOT SIGNIFY THAT THE ADMINISTRATOR HAS APPROVED OR RECOMMENDED THE 2016A BONDS, NOR HAS THE ADMINISTRATOR PASSED UPON OFFERING OF THE 2016A BONDS. ANY REPRESENTATION TO THE CONTRARY MAY BE A CRIMINAL OFFENSE. (4) THE PAYMENT OF THE PRINCIPAL OF AND INTEREST ON THE 2016A BONDS IS DEPENDENT UPON THE FINANCIAL CONDITION OF THE UNIVERSITY. THE UNIVERSITY HAS UNDERTAKEN TO PROVIDE CONTINUING DISCLOSURE ON CERTAIN MATTERS, INCLUDING ANNUAL FINANCIAL INFORMATION AND SPECIFIC EVENTS, AS MORE FULLY DESCRIBED HEREIN. SEE “CONTINUING DISCLOSURE” HEREIN. INFORMATION ON WEBSITE ADDRESSES SET FORTH IN THIS OFFERING MEMORANDUM IS NOT INCORPORATED INTO THIS OFFERING MEMORANDUM AND CANNOT BE RELIED UPON TO BE ACCURATE AS OF THE DATE OF THIS OFFERING MEMORANDUM, NOR CAN IT BE RELIED UPON IN MAKING INVESTMENT DECISIONS REGARDING THE 2016A BONDS.
502 East Boone Avenue Spokane, Washington 99258 (800) 986-9585 www.gonzaga.edu*
UNIVERSITY OFFICIALS
President ...... Thayne McCulloh, Ph.D. Chancellor ...... Bernard J. Coughlin, S.J. Academic Vice President ...... Patricia O’Connell Killen, Ph.D. Vice President for Finance...... Charles J. Murphy Vice President for Student Development ...... Judith Biggs Garbuio, Ph.D. Vice President for Mission & Ministry ...... Pat Lee, S.J. Vice President for University Advancement ...... Joseph Poss Vice President ...... Frank Case, S.J. Vice President for Policy, Planning and Administration ...... Robert Myers General Counsel ...... Maureen McGuire, J.D.
ADVISORS AND CONSULTANTS
Special Counsel ...... Kutak Rock LLP Financial Advisor ...... Prager & Co., LLC Trustee ...... U.S. Bank National Association
* The University’s website is not part of this Offering Memorandum, and investors should not rely on information presented in the University’s website in determining whether to purchase the 2016A Bonds. This inactive textual reference to the University’s website is not a hyperlink and does not incorporate the University’s website by reference.
TABLE OF CONTENTS
INTRODUCTION ...... 1 Financial Aid ...... 12 Purpose ...... 1 Gifts, Grants and Bequests ...... 12 The University ...... 1 Investment Performance and Earnings ...... 12 Security and Sources for Payment ...... 1 Other Factors Affecting the Financial Additional Information ...... 2 Performance of the University ...... 13 Possible Limitations on Enforceability of THE 2016A BONDS ...... 2 Obligations and Remedies ...... 13 General ...... 2 Amendments to Indenture ...... 14 Payments on the 2016A Bonds ...... 2 Secondary Market and Prices ...... 14 Redemption Provisions ...... 3 No Seasoned Funds ...... 14 Book-Entry System ...... 4 TAX MATTERS ...... 14 ESTIMATED SOURCES AND USES OF FUNDS ... 4 General ...... 14 THE REFUNDING PLAN ...... 6 Federal Tax Matters ...... 14 Escrow Account ...... 7 Tax Consequences to United States Verification of Mathematical Bondowners ...... 15 Computations ...... 7 Tax Consequences to Foreign Bondowners ...... 16 SECURITY FOR THE 2016A BONDS ...... 7 FATCA ...... 17 Pledge Under the Indenture ...... 7 State, Local and Foreign Taxes ...... 18 Outstanding Obligations and Expected ERISA Considerations ...... 18 Issuance of Additional Debt ...... 8 Intercreditor and Collateral Agency ENFORCEABILITY OF REMEDIES ...... 20 Agreement ...... 8 FINANCIAL ADVISOR ...... 20 No Debt Service Reserve Fund for the 2016A Bonds ...... 9 UNDERWRITING ...... 20 Certain Covenants of the University ...... 9 INDEPENDENT AUDITOR’S REPORT ...... 20 THE UNIVERSITY ...... 9 CONFLICTS OF INTEREST ...... 20 THE TRUSTEE ...... 10 RATINGS ...... 20 CERTAIN BONDOWNERS’ RISKS ...... 10 MATERIAL LITIGATION ...... 20 General ...... 11 Early Redemption ...... 11 CERTAIN LEGAL MATTERS ...... 21 Adequacy of Revenues ...... 11 CONTINUING DISCLOSURE ...... 21 Swap Agreement Interest Rate Risk ...... 12 Enrollment ...... 12 MISCELLANEOUS ...... 21 Tuition ...... 12
Appendix A: Selected Information Concerning the University Including Unaudited Financial Information Appendix B: Audited Consolidated Financial Statements of the University Appendix C: Form of Indenture of Trust Appendix D: Book-Entry System
[THIS PAGE INTENTIONALLY LEFT BLANK]
PRELIMINARY OFFERING MEMORANDUM
THE CORPORATION OF GONZAGA UNIVERSITY REVENUE AND REFUNDING TAXABLE BONDS, SERIES 2016A
INTRODUCTION
This Offering Memorandum, which includes the cover page, the appendices hereto and the documents incorporated herein by reference, is being provided by The Corporation of Gonzaga University (the ”University”) to furnish information in connection with the sale by the University of its Revenue and Refunding Taxable Bonds, Series 2016A, in the aggregate principal amount of $96,625,000* (the “2016A Bonds”). Unless otherwise defined in this Offering Memorandum, capitalized terms used herein will have the meanings set forth in Appendix C – “FORM OF INDENTURE OF TRUST.”
Purpose
The 2016A Bonds are being issued under an Indenture of Trust (the “Indenture”) dated as of October 1, 2016, between the University and U.S. Bank National Association, as trustee (the “Trustee”). The proceeds of the 2016A Bonds will be used for: (1) redeeming all of the Washington Higher Education Facilities Authority (the “Authority”) Revenue and Refunding Revenue Bonds (Gonzaga University Project), Series 2009 (the “2009A Bonds”); (2) redeeming a portion of the Authority’s Refunding Revenue Bonds (Gonzaga University Project), Series 2009B (the “2009B Bonds”)1; (3) redeeming all of the Authority’s Refunding Revenue Bonds (Gonzaga University Project), Series 2010A (the “2010A Bonds”); (4) redeeming all of the Authority’s Revenue Bonds (Gonzaga University Project), Series 2012A (the “2012A Bonds”); (5) redeeming all of the Authority’s Revenue Bonds (Gonzaga University Project), Series 2012B (the “2012B Bonds”) (the 2009A Bonds, the 2010A Bonds, the 2012A Bonds and the 2012B Bonds, and the portion of the 2009B Bonds being redeemed by proceeds of the 2016A Bonds being collectively referred to as the “Refunded Bonds”); (6) paying for the planning, designing, constructing, installing and furnishing of capital improvements to the University’s facilities; and (7) paying all of the costs of issuing the 2016A Bonds and the University’s $35,575,000 Revenue and Refunding Taxable Bonds, Series 2016B (the “2016B Bonds”). See “ESTIMATED SOURCES AND USES OF FUNDS.”
The University
The University is a Washington nonprofit corporation and an organization described under Section 501(c)(3) of the Internal Revenue Code of 1986, as amended (the “Code”). The University is a coeducational, privately endowed university offering undergraduate liberal arts, professional and graduate degrees. The University was incorporated in 1894 as Gonzaga College and changed its name to Gonzaga University in 1912. The University is located on a 152-acre campus in a residential area near the heart of downtown Spokane, Washington, and currently serves approximately 7,500 students. The University is governed by a Board of Trustees currently consisting of 34 elected Trustees and one ex officio Trustee, as well as a 68 member Board of Regents that serves in an advisory capacity. See “THE UNIVERSITY,” Appendix A – “SELECTED INFORMATION CONCERNING THE UNIVERSITY INCLUDING UNAUDITED FINANCIAL INFORMATION” and Appendix B – “AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF THE UNIVERSITY.”
Security and Sources for Payment
The 2016A Bonds are general obligations of the University to the payment of which the University has pledged certain of its Unrestricted Gross Revenues (the “Pledged Revenues”) in amounts and at times sufficient to pay the principal of and premium, if any, and interest on the 2016A Bonds when due pursuant to their terms or upon the redemption or acceleration thereof. The 2016A Bonds are secured by a security interest in the Pledged Revenues and (i) money held in all Funds and accounts under the Indenture (excluding the Cost of Issuance Fund), together with investment earnings thereon received by the Trustee, and (ii) all income, revenues, proceeds, obligations, securities and other amounts received by the Trustee and derived from or in connection with the 2016A Bonds, the Intercreditor and Collateral Agency Agreement and the Security Agreement, but excluding amounts payable as the Rating Agency Surveillance Fee, the Trustee Fee and the indemnification and reimbursement of the Trustee (collectively, the “Revenues”). See “SECURITY FOR THE 2016A BONDS” and Appendix C – “FORM OF INDENTURE OF TRUST.”
1 The outstanding principal amount of the 2009B Bonds not refunded with proceeds of the 2016A Bonds will be refunded with proceeds of the 2016B Bonds and any necessary contributions from the University. * Preliminary; subject to change.
Pursuant to the Fifth Amended and Restated Intercreditor and Collateral Agency Agreement dated as of October 1, 2016, among Bank of America, N.A., as the Swap Counterparty (as hereinafter defined); U.S. Bank National Association in its capacity as bond trustee for the 2009B Bonds, the 2013 Bonds (as hereinafter defined), the 2016A Bonds and the 2016B Bonds; U.S. Bank National Association and Wells Fargo Bank, National Association, as lenders under the Credit Agreements (as hereinafter defined); the purchasers of the 2016B Bonds; and U.S. Bank National Association, as the collateral agent (the “Intercreditor and Collateral Agency Agreement”), the pledge of the Pledged Revenues and certain pledged accounts (the ”Collateral”) with respect to the University’s obligations under the Indenture is on a parity with the pledges that secure the repayment of the 2009B Bonds, the Authority’s Revenue Bonds (Gonzaga University Project), Series 2013A and the Authority’s Taxable Revenue Bonds (Gonzaga University Project), Series 2013B (collectively the “2013 Bonds”) (currently outstanding in an aggregate principal amount of $53,000,000) and the 2016B Bonds (when issued); the University’s obligations under the Swaps (as hereinafter defined); and the University’s obligations to U.S. Bank National Association under a Credit Agreement, dated as of December 1, 2013 in connection with a line of credit and the University’s obligations to Wells Fargo Bank, National Association under a Credit Agreement dated December 18, 2013 in connection with a line of credit (as the same may be amended or modified from time to time, including amendments and restatements thereof in its entirety, collectively, the Credit Agreements”). The Intercreditor and Collateral Agency Agreement contemplates that additional secured parties may become parties to such agreement and that additional indebtedness may, in the future, be secured by interests in the Collateral on parity with the 2016A Bonds. All parties to the Intercreditor and Collateral Agency Agreement will share in the Collateral on a pooled basis on the terms and conditions described in the Intercreditor and Collateral Agency Agreement. See “SECURITY FOR THE 2016A BONDS – Outstanding Obligations” and “– Intercreditor and Collateral Agency Agreement.”
Additional Information
Included in this Offering Memorandum is information concerning the University, the sources of payment for the 2016A Bonds and the expected uses of proceeds of the 2016A Bonds, together with summaries of the terms of the 2016A Bonds and certain provisions of the Indenture, the Intercreditor and Collateral Agency Agreement and certain documents related thereto. All references herein to agreements or documents are qualified in their entirety by the definitive forms thereof, copies of which are available for inspection at the corporate trust office of the Trustee at 1420 Fifth Avenue, 7th Floor, Seattle, Washington 98101, Attention: Corporate Trust Services.
THE 2016A BONDS
General
The 2016A Bonds will be dated as of their date of initial delivery, will be issued in denominations of $1,000 or any integral multiple thereof within a single maturity (each an “Authorized Denomination”), and will bear interest from their dated date (or the most recent date to which interest has been paid thereon) until the 2016A Bonds mature or are duly called for redemption prior to maturity. Interest on the 2016A Bonds will be payable semiannually on each April 1 and October 1, commencing April 1, 2017 (each, an “Interest Payment Date”). Interest will be calculated on the basis of a 360-day year consisting of twelve 30-day months. The 2016A Bonds will bear interest at the rates, and will mature on the dates and in the amounts set forth on the inside front cover of this Offering Memorandum.
Payments on the 2016A Bonds
The 2016A Bonds will be issued as fully registered bonds under a book-entry system, initially registered to Cede & Co., as nominee of The Depository Trust Company, New York, New York (“DTC”), which will act as securities depository for the 2016A Bonds. Individual purchases of 2016A Bonds will be made in the principal amount of $1,000, or integral multiples thereof within a single maturity, and will be in book-entry form only. Purchasers will not receive certificates representing their interest in the 2016A Bonds, except as described herein. See “Book-Entry System” herein. The University and the Trustee, in its capacity as Bond Registrar (the “Bond Registrar”) may deem and treat the Registered Owner of each 2016A Bond as the absolute owner of such 2016A Bond for the purpose of receiving payments of principal and interest due on such 2016A Bond and for all other purposes, and neither the University nor the Bond Registrar shall be affected by any notice to the contrary. See “Book-Entry System” and Appendix D – “BOOK-ENTRY SYSTEM.”
If the 2016A Bonds are no longer held in fully immobilized form, the principal of, premium, if any, and interest on each 2016A Bond will be payable upon the presentation and surrender of such 2016A Bond, when due, at the Principal Office of the Bond Registrar. Payment of interest on each 2016A Bond will be made to the Registered Owner thereof as specified on the records of the Bond Registrar on the Record Date with respect to such Interest Payment Date irrespective of the cancellation of such 2016A Bond upon any transfer or exchange thereof subsequent to such Record Date and prior to such Interest Payment Date, unless the University shall default in the payment of interest due on such Interest Payment Date.
2
Each interest payment of each 2016A Bond will be paid: (1) by check or draft mailed first-class mail to such Registered Owner on the Interest Payment Date at his address as it appears on the Bond Register on the Record Date; or (2) at the option of any Registered Owner, by wire transfer to an account designated in writing by such Registered Owner prior to the Record Date with an acknowledgement that the then applicable wire fee of the Trustee will be deducted from the wire; or (3) by Automated Clearinghouse Transfers at no cost to the Registered Owner in next day funds if such Registered Owner shall have requested in writing a payment by such method and shall have provided the Bond Registrar with an account number in a bank within the United States and other necessary information for such purposes prior to the Record Date. In the event of any default in the payment of interest, such defaulted interest shall be payable to the Registered Owner of such 2016A Bond on a Special Record Date for the payment of such defaulted interest established by notice mailed by or on behalf of the University to Registered Owners.
Redemption Provisions∗
Optional Redemption. The 2016A Bonds are subject to redemption prior to maturity by written direction of the University, in whole or in part, on any Business Day, at the Make-Whole Redemption Price. The “Make-Whole Redemption Price” is the greater of (i) 100% of the principal amount of the 2016A Bonds to be redeemed; or (ii) the sum of the present value of the remaining scheduled payments of principal and interest to the maturity date of the 2016A Bonds to be redeemed, not including any portion of those payments of interest accrued and unpaid as of the date on which the 2016A Bonds are to be redeemed, discounted to the date on which the 2016A Bonds are to be redeemed on a semi-annual basis, assuming a 360-day year consisting of twelve 30-day months, at the Treasury Rate (as defined below) plus ___ basis points, plus, in each case, accrued and unpaid interest on the 2016A Bonds to be redeemed to the redemption date. The "Treasury Rate” is, as of any redemption date, the yield to maturity as of such redemption date of United States Treasury securities with a constant maturity (as compiled and published in the most recent weekly Federal Reserve Statistical Release H.15 (519) that has become publicly available at least two Business Days, but not more than 45 calendar days, prior to the redemption date (excluding inflation indexed securities) (or, if such Statistical Release is no longer published, any publicly available source of similar market data)) most nearly equal to the period from the redemption date to the maturity date of the 2016A Bonds to be redeemed; provided, however, that if the period from the redemption date to such maturity date is less than one year , the weekly average yield on actually traded United States Treasury securities adjusted to a constant maturity of one year will be used.
Mandatory Sinking Fund Redemption. The 2016A Bonds scheduled to mature on April 1, 2046*, are subject to mandatory sinking fund redemption at a price of par plus interest accrued to the date fixed for redemption, on April 1, in the years and amounts as follows:
2016A Bonds Scheduled to Mature on April 1, 2046* Years Principal Amounts 2044 $30,860,000 2045 32,190,000 2046(1) 33,575,000 (1) Final Maturity.
In the event that such 2016A Bonds have been optionally redeemed, defeased or purchased for cancellation, the remaining mandatory sinking fund redemptions will be reduced pro rata in Authorized Denominations.
Notice of Redemption. For so long as the 2016A Bonds are held in book-entry form by DTC or its nominee, notices of redemption will be given by the Trustee solely in accordance with the Letter of Representations. See “Book- Entry System” and Appendix D – “BOOK-ENTRY SYSTEM.”
If the 2016A Bonds are no longer held in fully immobilized form by DTC, the Trustee is required to give notice of redemption by first-class mail, postage prepaid, not less than 20 days and not more than 60 days prior to the date fixed for redemption, to the Registered Owner of each 2016A Bond to be redeemed at the address of such Registered Owner as shown on the Bond Register. Neither the failure of a Bondowner to receive notice by mail, nor any defect in such notice, will affect the validity of the proceedings for redemption.
∗ Preliminary; subject to change.
3
Notice of redemption may be given on a conditional basis if redemption is subject to the issuance of refunding bonds. Notice of redemption may also be rescinded by written notice given to the Trustee by the University no later than five Business Days prior to the date fixed for redemption. The Trustee shall give notice of such rescission as soon thereafter as practicable in the same manner as notice of such redemption was given.
Effect of Redemption. Once a notice of redemption has been given, unless the notice of redemption was duly rescinded or was conditioned upon the issuance of refunding bonds that were not issued, the 2016A Bonds designated for redemption will become due and payable on the date fixed for redemption and, unless the University defaults in the payment of the principal of or interest on such 2016A Bonds, such 2016A Bonds will cease to bear interest from and after the date fixed for redemption whether or not such 2016A Bonds are presented and surrendered for payment on such date. If any 2016A Bond called for redemption is not paid upon presentation and surrender thereof for redemption, such 2016A Bond will continue to bear interest at the rate set forth thereon until paid or until due provision is made for payment.
Partial Redemption. All or a portion of any 2016A Bond may be redeemed, but only in a principal amount equal to an Authorized Denomination. The maturities of 2016A Bonds to be redeemed are to be selected by the University, and in the case of partial redemption of 2016A Bonds of a particular maturity, on a “pro rata pass-through distribution of principal” basis or, if the 2016A Bonds are no longer in book-entry only form, on a pro rata basis. If any certificated 2016A Bond is to be redeemed in part, it must be surrendered to the Bond Registrar and the University will execute and the Bond Registrar will authenticate and deliver a new 2016A Bond or 2016A Bonds of Authorized Denominations of the same maturity and in the aggregate principal amount of the unredeemed 2016A Bond to the owner thereof.
Purchase of the 2016A Bonds. The University may acquire and sell 2016A Bonds in the open market from available funds of the University at any price the University deems reasonable. All 2016A Bonds so purchased need not be cancelled.
Defeasance of the 2016A Bonds. If the University pays or causes to be paid, or makes provisions for payment of the principal of, premium, if any, and interest due or to become due on the 2016A Bonds at the times and in the manner stipulated therein, and if the University has observed all the covenants and promises in the 2016A Bonds and in the Indenture to be observed on its part, and pays to the Trustee all money due or to become due according to the provisions of the Indenture, the Indenture and the lien, rights, estate and interest created thereby will cease, terminate and become null and void (except as to any rights of registration, transfer or exchange of 2016A Bonds provided for in the Indenture). Any 2016A Bonds, prior to the maturity or redemption thereof, will be deemed to be paid and defeased when payment of the principal of, and premium, if any, on such 2016A Bonds, plus interest thereon to the due date thereof, has been made or has been provided for, by irrevocably depositing with the Trustee any combination of money sufficient to make such payment when due and/or non-prepayable Government Obligations purchased with such money maturing as to principal and interest in such amounts and at such times as will insure the availability of sufficient money to make such payment. See “TAX MATTERS.”
Book-Entry System
When delivered, the 2016A Bonds will be registered in the name of Cede & Co., the nominee of DTC. DTC will act as the securities depository for the 2016A Bonds. Purchases of the 2016A Bonds may be made in book-entry form only, through brokers and dealers who are, or who act through, DTC Participants. Beneficial Owners of the 2016A Bonds will not receive physical delivery of certificated securities (except under certain circumstances described in the Indenture). Payment of the principal or redemption price of and interest on the 2016A Bonds are payable by the Trustee to DTC, which will in turn remit such payments to the DTC Participants, which will in turn remit such payments to the Beneficial Owners of the 2016A Bonds. In addition, so long as Cede & Co. is the Registered Owner of the 2016A Bonds, the right of any Beneficial Owner to receive payment for any 2016A Bond will be based only upon and subject to the procedures and limitations of the DTC book-entry system. The information set forth in Appendix D has been provided by DTC. Beneficial Owners should confirm the information contained in Appendix D with DTC or the Participants, as defined in Appendix D.
ESTIMATED SOURCES AND USES OF FUNDS
The 2016A Bonds are being issued for the purpose of: (1) redeeming the Refunded Bonds; (2) paying for the planning, designing, constructing, installing and furnishing of capital improvements to the University’s facilities; and (3) paying costs of issuing the 2016A Bonds and the 2016B Bonds.
4
The estimated sources and uses of funds in connection with the issuance of the 2016A Bonds are as follows:
SOURCES OF FUNDS: Principal of the 2016A Bonds: $ Debt Service Reserve Fund Release:
TOTAL: $ USES OF FUNDS: Deposit to Refunding Fund: Deposit to the University for Capital Improvements: Issuance Costs:(1) TOTAL: ______(1) Including, but not limited to, the initial fees of the Trustee, certain fees of the rating agencies, legal fees, financial advisory fees, Refunding Trustee fees, underwriters’ discount and costs of issuing the 2016B Bonds.
(Remainder of page intentionally left blank)
5
THE REFUNDING PLAN
A portion of the proceeds of the 2016A Bonds will be used to pay, redeem and retire the Refunded Bonds. The 2009A Bonds, 2010A Bonds and the portion of the 2009B Bonds being refunded with proceeds of the 2016A Bonds will be defeased through the purchase of Government Obligations to be held in escrow by U.S. Bank National Association, Seattle, Washington, as Refunding Trustee. The 2012A Bonds and the 2012B Bonds are expected to be redeemed and paid on the date of delivery of the 2016A Bonds. The escrow will be sufficient to redeem or retire the Refunded Bonds on the dates and at the prices in the schedule set forth below. The Refunded Bonds bear interest and are callable in accordance with the schedule set forth below. The University shall irrevocably deposit such Government Obligations as described above with the Refunding Trustee in a sufficient amount to pay the interest on the applicable Refunded Bonds up to and including the date the Refunded Bonds are redeemed and retired and to redeem and retire the Refunded Bonds on the dates and at the prices set forth below:
2009A Refunded Bonds Original Principal Interest CUSIP Redemption Maturity Date Amount Rate Number Date Redemption Price 4/1/2017 $1,650,000 5.250% 939781B90 4/1/2018 1,650,000 5.000 939781C24 4/1/2019 1,440,000 5.125 939781C32 4/1/2020 2,445,000 5.375 939781C40 4/1/2019 100.00% 4/1/2021 2,560,000 5.500 939781C57 4/1/2019 100.00 4/1/2022 2,690,000 5.625 939781C65 4/1/2019 100.00 4/1/2029 21,010,000 6.250 939781C73 4/1/2019 100.00 2009B Refunded Bonds1 Original Principal Interest CUSIP Redemption Maturity Date Amount Rate Number Date Redemption Price 4/1/2029 $13,790,000 5.000% 939781E71 4/1/2019 100.00% 2010A Refunded Bonds Original Principal Interest CUSIP Redemption Maturity Date Amount Rate Number Date Redemption Price 4/1/2017 $2,975,000 4.500% 939781H45 4/1/2018 2,365,000 5.000 939781H52 4/1/2019 2,375,000 5.000 939781H60 4/1/2020 1,335,000 4.000 939781H94 4/1/2019 100.00% 4/1/2021 1,375,000 4.125 939781J27 4/1/2019 100.00 4/1/2022 1,440,000 4.250 939781J35 4/1/2019 100.00 4/1/2023 1,505,000 4.300 939781J43 4/1/2019 100.00 4/1/2024 1,550,000 4.500 939781H86 4/1/2019 100.00 4/1/2029 8,895,000 4.875 939781H78 4/1/2019 100.00 2012A Refunded Bonds Original Principal Interest CUSIP Redemption Maturity Date Amount Rate Number Date* Redemption Price 4/1/2022 $7,305,000 VAR N/A 10/20/2016 100.00% 2012B Refunded Bonds Original Principal Interest CUSIP Redemption Maturity Date Amount Rate Number Date* Redemption Price 4/1/2017 $ 190,000 VAR N/A 10/20/2016 100.00% 4/1/2018 200,000 VAR N/A 10/20/2016 100.00 4/1/2019 210,000 VAR N/A 10/20/2016 100.00 4/1/2020 220,000 VAR N/A 10/20/2016 100.00 4/1/2021 230,000 VAR N/A 10/20/2016 100.00 4/1/2022 1,700,000 VAR N/A 10/20/2016 100.00
1 The outstanding principal amount of the 2009B Bonds not refunded with proceeds of the 2016A Bonds will be refunded with proceeds of the 2016B Bonds and any necessary contributions from the University. * Preliminary, subject to change.
6
Escrow Account
Upon issuance of the 2016A Bonds, the Refunding Trustee will invest a portion of the 2016A Bond proceeds in certain U.S. government obligations (the “Government Obligations”), pursuant to an Escrow Agreement entered into by and between the University and the Refunding Trustee. The Government Obligations and initial cash balance, if any, shall be held by the Refunding Trustee in the Escrow Account and the money and securities therein shall be used solely to defease, pay, redeem and retire the 2009A Bonds, the 2010A Bonds and the portion of the 2009B Bonds being refunded with proceeds of the 2016A Bonds. The 2012A Bonds and the 2012B Bonds are expected to be redeemed and paid on the date of delivery of the 2016A Bonds. The refunding of the Refunded Bonds will discharge the pledge of the funds securing the Refunded Bonds, and the owners of the Refunded Bonds will no longer be entitled to the security of the indentures executed in connection with the Refunded Bonds, except for the right to payments from the amounts held by the Refunding Trustee under the Escrow Agreement.
Verification of Mathematical Computations
Causey Demgen & Moore P.C., a nationally recognized independent firm of certified public accountants (the “Verification Agent”), will verify the arithmetical accuracy of certain computations included in the schedules provided by the Underwriters on behalf of the University relating to: (1) forecasted receipts of principal of and interest on the Government Obligations; and (2) the payment of the principal of and interest on the Refunded Bonds. Such computations will be based solely on assumptions and information supplied by the Underwriters. The Verification Agent will restrict its procedures to verifying the arithmetical accuracy of such computations and will not independently study or evaluate the assumptions and information upon which the computations were based. Accordingly, the Verification Agent will not express an opinion on the data used, the reasonableness of the assumptions, or the achievability of the forecasted outcome. The receipt of the report is a condition to the issuance of the 2016A Bonds.
SECURITY FOR THE 2016A BONDS
Pledge Under the Indenture
By means of the Indenture, the University will pledge the Trust Estate to the Trustee for purposes of securing the University’s obligations under the Indenture. The “Trust Estate” includes: (1) the Pledged Revenues, which consist of the University’s Unrestricted Gross Revenues; (2) all Revenues (subject to disbursement and application in accordance with the Indenture), which are defined in the Indenture to include money held in the Funds and accounts created under the Indenture (except the Cost of Issuance Fund and any money collected pursuant to fees, reimbursement or indemnification of the Trustee), together with investment earnings thereon; and (3) any and all other property hereafter pledged or assigned as and for additional security under the Indenture.
The 2016A Bonds are general obligations of the University to the payment of which the University has pledged the Pledged Revenues in amounts and at times sufficient to pay the principal of and premium, if any, and interest on the 2016A Bonds when due pursuant to their terms or upon the redemption or acceleration thereof. The 2016A Bonds are secured by a security interest in such Pledged Revenues and the other Revenues.
As defined in the Indenture, Unrestricted Gross Revenues means all moneys, fees and tuition (net of institutional financial aid and other discounts or waivers), rates, receipts, rentals, licensing fees, charges, issues and income received or derived by the University, the operation of the University, or its facilities or any other source whatsoever, as reported on the University’s audited financial statement of activities, including, without limitation, gifts, bequests, grants, devises, contributions, moneys received from the operation of the University’s business or the possession of its properties, insurance proceeds or condemnation awards, and all rights to receive the same, whether in the form of accounts, accounts receivable, contract rights or other rights, and the proceeds of the same whether now owned or held or hereafter coming into being, but excluding gifts, grants, devises, bequests and contributions designated by the maker to a specific purpose inconsistent with their use for payment of principal of, premium, if any, and interest on Indebtedness or for the payment of operating expenses of the University and further excluding any gifts, grants, devises, bequests or contributions received by any foundation or other legal entity created by but separate from the University. For purposes of calculating Unrestricted Gross Revenues with respect to the covenants contained in the Indenture, “Unrestricted Gross Revenues” means the sum of the University’s Unrestricted Total Operating Revenues plus the Unrestricted Net Assets Released from Restrictions in the Nonoperating Activities section of the University’s Audited Financial Statements-Consolidated Statement of Activities. From and after such time as the 2009A Bonds are redeemed, paid and defeased, and are no longer outstanding under the Intercreditor and Collateral Agency Agreement and the Swaps are terminated or amended to conform, for purposes of Pledged Revenues, the definition of Unrestricted Gross Revenues will exclude revenues from facilities constructed or
7 acquired after October 1, 2009, which revenues are pledged to obligations (other than Additional Bonds or Indebtedness having a parity lien on the Unrestricted Gross Revenues with the 2016A Bonds) incurred to finance such new facilities.
Outstanding Obligations and Expected Issuance of Additional Debt
The pledge of the Collateral with respect to the University’s obligations under the Indenture will be on parity with the pledges that secure the repayment of the 2009B Bonds, the 2013 Bonds, the University’s obligations under the Swaps and the University’s obligations under the Credit Agreements. The Intercreditor and Collateral Agency Agreement contemplates that additional secured parties may become parties to such agreement and that additional indebtedness may, in the future, be secured by interests in the Collateral on parity with the 2016A Bonds and the 2016B Bonds. All parties to the Intercreditor and Collateral Agency Agreement will share in the Collateral on a pooled basis on the terms and conditions described in the Intercreditor and Collateral Agency Agreement. See “Intercreditor and Collateral Agency Agreement.”
Interest Rate Swap Agreements. The University and Bank of America, N.A. (the ”Swap Counterparty”) entered into a forward-start interest rate swap agreement in connection with the issuance of the Authority’s Refunding Revenue Bonds (Gonzaga University Project), Series 2007B, effective October 1, 2014 (the ”2007B Swap”) and a forward-start interest rate swap agreement in connection with the issuance of the Authority’s Refunding Revenue Bonds (Gonzaga University Project), Series 2007C, effective October 1, 2012 (the ”2007C Swap” and, together with the 2007B Swap, the ”Swaps”).
The Swaps had an initial notional amount of $42,875,000 and have a $35,575,000 outstanding notional amount as of May 31, 2016. See the discussion of derivative financial instruments under Note 6 in Appendix B – “AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF THE UNIVERSITY” and Appendix A – “SELECTED INFORMATION CONCERNING THE UNIVERSITY INCLUDING UNAUDITED INFORMATION – Interest Rate Swap Agreements” for additional information regarding the Swaps. Under the Swaps, the University is obligated to pay a fixed rate on the notional amount and in exchange the Swap Counterparty is obligated to pay the University a variable rate on the notional amount based on the One-Month London Interbank Offered Rate (LIBOR).
The Swaps are subject to early termination by the University at any time or the Swap Counterparty upon the occurrence of an additional termination event.
The pledge of the Pledged Revenues under the Indenture is on parity with the pledge that secures University’s obligations under the Swaps and any future swap transactions between the University and the Swap Counterparty. See “Intercreditor and Collateral Agency Agreement.”
Additional Indebtedness. The University anticipates issuing the 2016B Bonds in the principal amount of $35,575,000 for the purpose of: (1) redeeming the portion of the 2009B Bonds not refunded by the 2016A Bonds (along with any necessary contributions from the University); and (2) paying for the planning, designing, constructing, installing and furnishing of capital improvements to the University’s facilities.
The 2016B Bonds will be issued pursuant to a separate indenture of trust between the University and U.S. Bank National Association, as trustee. The University anticipates issuing the 2016B Bonds and selling the 2016B Bonds directly to one or more financial institutions by October 31, 2016.
Intercreditor and Collateral Agency Agreement
In connection with the issuance of the 2016A Bonds and the 2016B Bonds, Bank of America, N.A., as the Swap Counterparty; the Trustee in its capacity as bond trustee for the 2009B Bonds, the 2013 Bonds, the 2016A Bonds and the 2016B Bonds; the purchasers of the 2016B Bonds; U.S. Bank National Association and Wells Fargo Bank, National Association as lenders under the Credit Agreements; and U.S. Bank National Association, as the collateral agent (the “Collateral Agent”) will enter into the Intercreditor and Collateral Agency Agreement to amend and restate a Fourth Amended and Restated Intercreditor and Collateral Agency Agreement dated as of August 1, 2013, which had amended and restated a Third Amended and Restated Intercreditor and Collateral Agency Agreement dated as of August 1, 2012, which had amended and restated an Intercreditor and Collateral Agency Agreement dated as of January 1, 2010, which had amended and restated an Intercreditor and Collateral Agency Agreement dated as of September 30, 2009, which had amended and restated an Intercreditor and Collateral Agency Agreement dated as of September 1, 2008.
Pursuant to the Intercreditor and Collateral Agency Agreement, the Collateral Agent is appointed as the agent of the parties thereto with respect to the Collateral. The Collateral Agent is authorized to enforce rights and remedies of the secured
8 parties under a Fifth Amended and Restated Security Agreement dated as of October 1, 2016 (the “Security Agreement”), made by the University in favor of the Collateral Agent, for the benefit of Bank of America, N.A., U.S. Bank National Association, as bond trustee, U.S. Bank National Association, Wells Fargo Bank, National Association, the purchasers of the 2016B Bonds and additional bond trustees and secured creditors (collectively, the “Secured Creditors”). Under the Intercreditor and Collateral Agency Agreement, the parties have agreed that the security interests and liens granted to the Collateral Agent will secure Indebtedness (as defined therein) on a pari passu basis for the benefit of the Collateral Agent and the Secured Creditors, notwithstanding the relative priority or the time of grant, creation, attachment or perfection of any security interest and liens, if any, of any of the Collateral Agent or any such Secured Creditor.
For purposes of the Intercreditor and Collateral Agency Agreement, “Indebtedness” includes: (1) payment obligations of the University under the Swaps and any swap contracts that may in the future be entered into between the University and Bank of America, N.A.; (2) obligations of the University to repay the loan with respect to the 2009B Bonds; (3) obligations of the University to repay the loan with respect to the 2013 Bonds; (4) obligations of the University pursuant to the Indenture in connection with the 2016A Bonds; (5) the obligations of the University to repay amounts in connection with the 2016B Bonds and additional bonds issued by the Authority for the benefit of the University; (6) any indebtedness for borrowed money incurred by the University and secured by the Security Agreement; (7) obligations of the University or any Secured Creditor to pay, reimburse or indemnify the Collateral Agent; (8) obligations owing by the University to the administrative agent and the lenders pursuant to the Credit Agreements; (9) certain liabilities of the University owing to lenders under the Credit Agreements or their affiliates arising out of transactions involving accounts of the University maintained with such parties or other deposit, disbursement and cash management services afforded to the University by such lenders and affiliates; (10) liability of the University to any lender under the Credit Agreements or their affiliates, in respect of certain hedging arrangements that may be entered into from time to time; (11) other present or future indebtedness, liabilities or obligations of the University owed to any or all of the Collateral Agent or any other Secured Creditor; and (12) other future indebtedness of the University secured by a parity lien on the Collateral.
The Intercreditor and Collateral Agency Agreement contemplates that additional parties may become secured parties thereunder in the future and that additional indebtedness may be secured by the Pledged Revenues on a parity with the liens or security interests of the original Secured Parties. The rights and remedies of the Trustee, on behalf of Bondowners, under the Indenture with respect to the Pledged Revenues are governed by and subject to the terms and conditions of the Intercreditor and Collateral Agency Agreement. All parties to the Intercreditor and Collateral Agency Agreement share in the Collateral on a pooled basis, on the terms and conditions set forth therein. See “SECURITY FOR THE 2016A BONDS” and Appendix C – “FORM OF INDENTURE OF TRUST.”
No Debt Service Reserve Fund for the 2016A Bonds
The 2016A Bonds are not secured by any debt service reserve fund.
Certain Covenants of the University
The University has agreed to certain covenants for the protection of the Bondowners. For a more detailed description of these and other covenants of the University, see Appendix C – “FORM OF INDENTURE OF TRUST – Article VII Payment; Further Agreements.” Section 717 of the Indenture contains a negative pledge on the University’s Core Campus and conditions for securing additional Indebtedness; Section 718 of the Indenture sets forth conditions for the issuances of additional Indebtedness; and Section 719 of the Indenture sets forth an Expendable Net Asset Ratio and a Debt Service Coverage Ratio. From and after such time as the Refunded Bonds and the remaining 2009B Bonds are redeemed, paid and defeased, and are no longer outstanding under the Intercreditor and Collateral Agency Agreement and the Swaps are terminated or amended to eliminate the covenants contained in Sections 717, 718 and 719 of the Indenture, the covenants contained in Sections 717, 718 and 719 of the Indenture shall no longer apply to the University.
THE UNIVERSITY
Founded in Spokane, Washington, by members of the Society of Jesus in 1887, the University is an independent Roman Catholic and Jesuit University. The University was incorporated in 1894 as Gonzaga College and changed its name to Gonzaga University in 1912. The University does not receive financial support from the Roman Catholic Church, but rather it depends on tuition revenues, gifts and the income from its endowment for its operational needs. The University is a Washington nonprofit corporation and an organization described under Section 501(c)(3) of the Code. The University’s educational philosophy is based upon the 450-year-old Ignatian model that aims to educate the whole person: mind, body and spirit – an integration of science and art, faith and reason, action and contemplation. The University is routinely recognized in national publications as one of the West’s best comprehensive regional universities.
9
The University is located on a 152-acre campus in a residential area near the heart of downtown Spokane, Washington, currently serving approximately 7,500 students. The state of Washington (the “State”) accorded the University status as a university in 1912, the same year the School of Law began. The School of Business Administration was established in 1921, the School of Education in 1928, the Graduate School in 1931, the School of Engineering and Applied Science in 1934, the School of Professional Studies in 1975 and the School of Nursing and Human Physiology in 2013. The University maintains contact with more than 48,000 alumni, through its quarterly alumni publication and other methods.
The University offers 7 bachelor’s degrees in 75 majors and programs; master’s degrees in 26 programs and doctorate degrees in Nursing Practice and Nurse Anesthesia Practice programs, in addition to primary and secondary education credential programs. Programs are offered through the Colleges of Arts and Sciences and the Schools of Business Administration, Education, Engineering and Applied Science, Professional Studies, Nursing and Human Physiology, and Law. The University is governed by a Board of Trustees currently consisting of 34 elected Trustees and one ex officio Trustee, as well as a 68-member Board of Regents that serves in an advisory capacity.
For additional information regarding the University, please see Appendix A – “SELECTED INFORMATION CONCERNING THE UNIVERSITY INCLUDING UNAUDITED FINANCIAL INFORMATION” and Appendix B – “AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF THE UNIVERSITY.”
THE TRUSTEE
The information under this heading has been provided solely by the Trustee and is believed to be reliable, but has not been verified independently by the University or the Underwriters. No representation whatsoever as to the accuracy, adequacy or completeness of such information is made by the University or the Underwriters.
U.S. Bank National Association is the Trustee under the Indenture. The Trustee is a national banking association organized and existing under the laws of the United States of America, having all of the powers of a bank, including fiduciary powers, and is a member of the Federal Deposit Insurance Corporation and the Federal Reserve System. The mailing address of the Trustee is U.S. Bank National Association, 1420 Fifth Avenue, Seventh Floor, Seattle, Washington 98101, Attention: Corporate Trust Services.
The Trustee is to carry out such duties as are assigned to it under the Indenture. Except for the contents of this section, the Trustee has not reviewed or participated in the preparation of this Offering Memorandum and assumes no responsibility for the nature, contents, accuracy or completeness of the information set forth in this Offering Memorandum or for the recitals contained in the Indenture or the 2016A Bonds (except for the certificate of authentication on each 2016A Bond), or for the validity, sufficiency, or legal effect of any of such documents.
Furthermore, the Trustee has no oversight responsibility, and is not accountable, for the use or application by the University of any of the 2016A Bonds authenticated or delivered pursuant to the Indenture or for the use or application of the proceeds of such 2016A Bonds by the University. The Trustee has not evaluated the risks, benefits, or propriety of any investment in the 2016A Bonds and makes no representation, and has reached no conclusions, regarding the value or condition of any assets or revenues pledged or assigned as security for the 2016A Bonds, the technical or financial feasibility of the expected uses of proceeds of the 2016A Bonds or the investment quality of the 2016A Bonds, about all of which the Trustee expresses no opinion and expressly disclaims the expertise to evaluate.
Additional information about the Trustee may be found at its website at http://www.usbank.com/corporatetrust. Neither the information on U.S. Bank’s website, nor any links from that website, is part of this Offering Memorandum, and such information cannot be relied upon to be accurate as of the date of this Offering Memorandum, nor should any such information by relied upon to make investment decisions regarding the 2016A Bonds.
CERTAIN BONDOWNERS’ RISKS
The purchase of the 2016A Bonds will involve a number of risks. Each prospective purchaser of the 2016A Bonds should make an independent evaluation of all of the information presented in this Offering Memorandum to make an informed investment decision. The following is a summary, which does not purport to be comprehensive or definitive, of some of such risk factors.
10
General
An investment in the 2016A Bonds involves certain risks, including the risk of nonpayment of interest or principal due to Bondowners and the risk that the 2016A Bonds will be redeemed prior to maturity. The enforceability of the University’s obligations pursuant to the Indenture may be limited by the laws of the State and the United States with respect to bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors’ rights generally and by the availability of equitable remedies. See “SECURITY FOR THE 2016A BONDS.” The risk of nonpayment or that the 2016A Bonds will be redeemed prior to maturity is affected by the following factors, among others, which should be considered by prospective investors, along with other information presented in this Offering Memorandum, in judging the suitability of an investment in the 2016A Bonds. The 2016A Bonds may not be a suitable investment for all prospective purchasers. Prospective purchasers should consult their investment advisors before making any decisions as to the purchase of the 2016A Bonds.
Early Redemption
Purchasers of 2016A Bonds, including those who purchase the 2016A Bonds at a price in excess of their principal amount or who hold such a 2016A Bond trading at a price in excess of par, should consider the fact that certain maturities of the 2016A Bonds are subject to redemption at a price equal to their principal amount plus accrued interest in the event such 2016A Bonds are redeemed prior to maturity upon mandatory sinking fund redemption. See the description herein under the heading “THE 2016A BONDS – Redemption Provisions.”
Adequacy of Revenues
The future financial condition of the University and the University’s ability to perform its obligations under the Indenture are subject, among other things, to the capabilities of University management and future economic and other conditions which are unpredictable. In addition to the obligations of the University under the Indenture, the existing obligations of the University under the 2009B Bonds, the 2013 Bonds, the Swaps and the Credit Agreements, the University expects to issue the 2016B Bonds, may incur other additional indebtedness on a parity lien with the 2016A Bonds and may incur indebtedness on a subordinated basis. See “SECURITY FOR THE 2016A BONDS.” These factors may adversely affect the University’s revenues and the performance by the University of its obligations under the Indenture. The future financial condition of the University could be adversely affected by, among other things, detrimental State or federal legislation, detrimental State or federal regulatory actions, increased competition from other educational institutions, including State institutions of higher education, decreased demand for higher education services because of higher costs or other reasons, demographic changes, increased costs beyond the ability of the University to control or to increase revenue to offset such increased costs, natural disasters, reduced availability of student financial aid and tax law changes.
From and after such time as the 2009A Bonds are redeemed, paid and defeased, and are no longer outstanding under the Intercreditor and Collateral Agency Agreement and the Swaps are terminated or amended to conform, for purposes of Pledged Revenues, the definition of Unrestricted Gross Revenues will exclude revenues from facilities constructed or acquired after October 1, 2009, which revenues are pledged to obligations (other than Additional Bonds or Indebtedness having a parity lien on the Unrestricted Gross Revenues with the 2016A Bonds) incurred to finance such new facilities
The ability of the University to generate sufficient revenues to meet its obligations under the Indenture depends on a number of factors, including: (1) the University’s ability to achieve enrollment, tuition and fundraising at levels sufficient to consistently enjoy operating surpluses; and (2) the University’s ability to continue to provide financial aid to its students at sufficient levels in attractive combinations of scholarships, grants, loans and work-study (if applicable). These factors are in turn affected by numerous future economic and other conditions which could include possible adverse effects such as the loss by the University of its accreditations; destruction or loss of a substantial portion of the University’s facilities; litigation; competition; discontinuation of favorable governmental policies and programs with respect to post-secondary education; changes in direction of demographic trends determining the number of college-aged persons in the general population; changes in prospective levels of regional and national economic prosperity; the occurrence of natural, national or international calamities; changes in the competitive appeal and perceived quality of the University’s curriculum; changes in the demand for post-high school education and for certain degrees; the ability and energy of the faculty and administration; a reduction in the amounts received by the University through fundraising efforts; or a reduction in the value of the University’s assets. There can be no assurance that the University’s income and receipts will not decrease.
11
Swap Agreement Interest Rate Risk
The University uses the Swaps to manage its exposure to interest rate fluctuations. There are a number of risks associated with swaps that could affect the value of the Swaps, the ability of the University to accomplish its objectives in entering into the Swaps and the ability of the University to meet its obligations under the Swaps and with respect to the 2016A Bonds. These risks include, among others: counterparty risk – the failure of the counterparty to make required payments; credit risk – the occurrence of an event modifying the credit rating of the University or its counterparty; termination risk – the need to terminate the transaction in a market that dictates a termination payment by the University; and tax risk – the risk created by potential tax events that could affect swap payments. If the University’s bond rating falls below BBB+ by S&P Global Ratings or Baa1 by Moody’s Investors Service, the swap counterparty has the ability to require the University to post collateral. Swap agreements are subject to periodic “mark-to-market” valuations. The Swaps (and any similar future agreements) may, at any time, have a positive or negative value to the University. If the University chooses to terminate a swap agreement or if a swap agreement is terminated pursuant to an event of default or a termination event as described in the swap agreement, the University may be required to pay a termination payment to the swap provider, and such payment may adversely affect the University’s financial condition.
Enrollment
The University believes that the strength of its academic programs, faculty and facilities will cause the demand for its educational programs overall to remain stable; however, no assurance can be given that demand for its educational programs will remain constant. A number of economic, demographic and other circumstances not controllable or presently foreseeable by the University could materially adversely affect its future enrollment and expenses of operation. Declining enrollment would decrease the University’s income and adversely impact its ability to meet its obligations under the Indenture, as would any significant increase in its operating costs or its inability to decrease operating costs in the face of declining enrollments. No assurances can be given regarding the University’s projected future enrollment or its ability to adequately control its operating costs and expenses.
Tuition
A significant portion of the University’s operating revenue is provided through tuition and related fees. Although the University has in the past been able to raise tuition and related fees without adversely affecting enrollment, there can be no assurance that it will continue to be able to do so in the future, or that the increase will be in amounts sufficient to offset expenses. Future tuition increases and any adverse change in enrollment could adversely affect the University’s financial position and its results of operations.
Financial Aid
A significant percentage of the University’s students receive financial support in the form of federally supported loans and scholarships and grants from the University. There can be no assurance that the amount of federally supported loans or other financial aid will remain stable or increase in the future. If the amount of those loans or other financial aid decreases in the future, there can be no assurance that the University will be able to increase the amount of financial aid provided by it. Changes in the availability of financial aid could likely adversely affect the University’s enrollment, and could therefore adversely affect the University’s financial position and its results of operations.
Gifts, Grants and Bequests
The University is continuously involved in fund raising activities of various types. Given actual and possible reductions in federal educational and student assistance programs and the increasing cost of operating a quality university, an inability by the University to raise substantial amounts of money from alumni and other private sources would have a depressing effect on the University’s programs with possible adverse consequences for enrollment and results from operations.
Investment Performance and Earnings
The University’s various investment accounts include fixed income securities, equity holdings and alternative investments. The past performance and gains in such investments cannot be used as a basis to predict future results. The results in subsequent fiscal years will depend upon the state of general economic conditions and market results of both fixed income and equity securities, which may be held by the University from time to time for its investment purposes.
12
Other Factors Affecting the Financial Performance of the University
One or more of the following factors or events, or the occurrence of other unanticipated factors or events, could adversely affect the University’s operations and financial performance to an extent that cannot be determined at this time:
(1) Changes in Management. Changes in key management personnel could affect the capability of the management of the University.
(2) Future Economic Conditions. Increased unemployment, adverse economic conditions, changes in the demographics of the service area of the University and the cost and availability of energy, an inability to control expenses in periods of inflation, and difficulty in increasing charges and other fees while maintaining the quality of educational services could all affect the financial performance of the University.
(3) Competition. Increased competition from other institutions of higher education could adversely affect the enrollment at or revenues of the University, which could force the University to offer discounted rates, or which could adversely affect the ability of the University to attract faculty or other staff.
(4) Organized Labor Efforts. Efforts to organize employees of the University into collective bargaining units could result in adverse labor actions or increased labor costs.
(5) Environmental Matters. Legislative, regulatory, administrative or enforcement action involving environmental controls could adversely affect the operation of the facilities of the University. For example, if property of the University is determined to be contaminated by hazardous materials, the University could be liable for significant clean-up costs even if it were not responsible for the contamination.
(6) Natural Disasters. The occurrence of natural disasters could damage the facilities of the University, interrupt services or otherwise impair the operations and ability of the University to produce revenues.
Possible Limitations on Enforceability of Obligations and Remedies
General. The enforceability of the University’s obligations pursuant to the Indenture may be limited by the laws of the State and the United States with respect to bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors’ rights generally and by the availability of equitable remedies. The opinions of Special Counsel will so state. The practical realization of any rights upon any default will depend upon the exercise of various remedies specified in the Indenture. These remedies, in certain respects, may require judicial action which is often subject to discretion and delay. Under existing law, certain of the remedies specified in the Indenture may not be readily available or may be limited. A court may decide not to order the specific performance of these covenants.
Security Interest in Pledged Revenues. The effectiveness of the Indenture and the security interest in the Pledged Revenues granted therein may be limited by a number of factors, including but not limited to: (1) commingling of Pledged Revenues with other money of the University not so pledged; (2) statutory liens; (3) rights arising in favor of the United States of America or any agency thereof; (4) constructive trusts and equitable or other rights impressed or conferred by a federal or State court in the exercise of its equitable jurisdiction; (5) federal bankruptcy laws that may affect the enforceability of the Indenture or the security interest in the Pledged Revenues received by the University within 90 days preceding and after any effectual institution of bankruptcy proceedings by or against the University; (6) rights of third parties in Pledged Revenues converted to cash and not in the possession of the Trustee; (7) claims that might arise if appropriate financing or continuation statements are not filed in accordance with the Washington Uniform Commercial Code from time to time in effect; and (8) delay and/or unwillingness of a court to compel the University to transfer or assign its Pledged Revenues to the Trustee. In addition, federal bankruptcy law permits adoption of a reorganization plan even though it has not been accepted by the Bondowners of a majority in aggregate principal amount of the 2016A Bonds, if the Bondowners are provided with the benefit of their original lien or the “indubitable equivalent.” Further, if the bankruptcy court concluded that such Bondowners had “adequate protection,” it could: (a) substitute other security for the security provided by the Indenture for the benefit of the Bondowners; and (b) subordinate the lien of the Bondowners (i) to claims by persons supplying goods and services to the debtor after bankruptcy, and (ii) to the administrative expenses of the bankruptcy proceeding. In the event of the bankruptcy of the University, the amount realized by the Bondowners might depend on the bankruptcy court’s interpretation of the “indubitable equivalent” and “adequate protection” under the then- existing circumstances.
13
In addition, the University may incur additional obligations to which its Pledged Revenues and other Collateral are pledged in accordance with the terms of the Indenture and the Intercreditor and Collateral Agency Agreement. See “SECURITY FOR THE 2016A BONDS.”
Amendments to Indenture
The Indenture may be amended with or without the consent of Bondowners. The Indenture permits amendments thereto, without the consent of Bondowners, to provide for the release of Revenues, Pledged Revenues and all other property and collateral pledged to the Trust Estate in exchange for a master trust indenture obligation to be issued pursuant to a master trust indenture of the University. See Appendix C – “FORM OF INDENTURE OF TRUST – Article X Supplemental Indentures.” From and after such time as the Refunded Bonds and the remaining 2009B Bonds are redeemed, paid and defeased, and are no longer outstanding under the Intercreditor and Collateral Agency Agreement and the Swaps are terminated or amended to eliminate the covenants contained in Sections 717, 718, and 719 of the Indenture, the covenants contained in Sections 717, 718 and 719 of the Indenture shall no longer apply to the University.
Secondary Market and Prices
The Underwriters are not obligated to engage in secondary trading or to repurchase any of the 2016A Bonds at the request of the owners thereof. No assurance can be given that a market will exist for the resale of the 2016A Bonds. Because of general market conditions or because of adverse history or economic prospects connected with a particular issue or issuer, secondary marketing activity in connection with a particular issue may be suspended or terminated. Additionally, prices of issues for which a market is being made will depend upon then prevailing circumstances. Such prices could be substantially different from the original purchase price. THERE CAN BE NO GUARANTEE THAT THERE WILL BE A SECONDARY MARKET FOR THE 2016A BONDS, OR IF A SECONDARY MARKET EXISTS, THAT THE 2016A BONDS CAN BE SOLD FOR ANY PARTICULAR PRICE.
No Seasoned Funds
There is no requirement in the Indenture that seasoned funds be provided by the University in connection with the optional redemption of the 2016A Bonds. If any such payments are made to Bondowners with funds that are not seasoned funds at a time when the University is insolvent, which determination may occur up to one year after the payment is made, then Bondowners may be required by a bankruptcy court to refund those payments to the bankruptcy court.
TAX MATTERS
THE MATERIAL UNDER THIS CAPTION “TAX MATTERS” CONCERNING THE TAX CONSEQUENCES OF OWNERSHIP OF THE 2016A BONDS WAS WRITTEN TO SUPPORT THE MARKETING OF THE 2016A BONDS, AND EACH BONDOWNER SHOULD SEEK ADVICE BASED ON THE BONDOWNER’S PARTICULAR CIRCUMSTANCES FROM AN INDEPENDENT TAX ADVISOR. THIS MATERIAL WAS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED BY ANY TAXPAYER, FOR THE PURPOSE OF AVOIDING PENALTIES THAT MAY BE IMPOSED ON THE TAXPAYER.
General
Interest on and profit, if any, on the sale of the 2016A Bonds are not excludable from gross income for federal, state or local income tax purposes.
Federal Tax Matters
The following discussion summarizes the material United States federal income tax consequences generally applicable to the purchase, ownership and disposition of the 2016A Bonds by the beneficial owners thereof (“Bondowners”). The discussion is generally limited to the tax consequences to the initial Bondowners of the 2016A Bonds who purchase the 2016A Bonds at the issue price within the meaning of Section 1273 of the Code, and generally does not address the tax consequences to subsequent purchasers of the 2016A Bonds. The discussion does not purport to be a complete analysis of all of the potential United States federal income tax consequences relating to the purchase, ownership and disposition of the 2016A Bonds, nor does this discussion describe any estate or gift tax consequences. Furthermore, the discussion does not address all aspects of taxation that might be relevant to particular purchasers in light of their individual circumstances. For instance, the discussion does not address the alternative minimum tax provisions of the Code or special rules applicable to certain categories of purchasers including dealers in securities or foreign currencies, insurance companies, regulated investment companies, real estate mortgage investment conduits, financial institutions, tax-exempt entities,
14
Bondowners whose functional currency is not the United States dollar and, except to the extent discussed below, Foreign Bondowners (as defined below). The discussion does not address the special rules applicable to purchasers who hold the 2016A Bonds as part of a hedge, straddle, conversion, constructive ownership or constructive sale transaction or other risk reduction transaction. The discussion does not address foreign taxes.
The discussion is based on the provisions of the Code, the regulations of the Department of the Treasury, and administrative and judicial interpretations, all as in effect today and all of which are subject to change, possibly on a retroactive basis. The discussion assumes that the 2016A Bonds are held as capital assets within the meaning of Section 1221 of the Code.
Tax Consequences to United States Bondowners
Interest on the 2016A Bonds is taxable to a United States Bondowner as ordinary income at the time the interest accrues or is received in accordance with the United States Bondowner’s method of accounting for United States federal income tax purposes. A “United States Bondowner” is a Bondowner of a 2016A Bond that is, for United States federal income tax purposes: (1) a citizen or resident of the United States, (2) a corporation, partnership or other entity created or organized in or under the laws of the United States or of any political subdivision thereof, (3) an estate, the income of which is subject to United States federal income taxation regardless of its source, or (4) a trust, the administration of which is subject to the primary supervision of a court within the United States and which has one or more United States persons with authority to control all substantial decisions, or a certain type of trust that was in existence on August 20, 1996, and has elected to continue to be treated as a United States person. If a partnership (or an entity taxable as a partnership) holds the 2016A Bonds, the United States federal income tax treatment of a partner generally will depend upon the status of the partner and the activities of the partnership.
Original Issue Discount. Any 2016A Bond issued at an issue price less than its principal amount will have “original issue discount,” a portion of which will accrue as taxable income to the Bondowner in each taxable year in addition to taxation of regular stated interest, regardless of whether the Bondowner uses the cash or accrual method of accounting and regardless of the fact that the Bondowner receives no actual payment of the original issue discount until the maturity of the 2016A Bond. Taxation of original issue discount in this manner is subject to a de minimis exception based on the amount of the original issue discount in relation to the maturity of the 2016A Bond. Bondowners should consult their tax advisors regarding the accrual of original issue discount or amortization of any original issue premium and the effect of accruals or amortization on their tax basis for their 2016A Bonds.
Tax-Exempt Organizations. Income or gain realized from 2016A Bonds held by a tax-exempt organization will be subject to the tax on unrelated business taxable income if the 2016A Bonds are “debt-financed property” of the organization under Section 514(b) of the Code.
Sale, Exchange, Redemption or Retirement of the 2016A Bonds. In general, upon the sale, exchange, redemption or retirement of a 2016A Bond, a United States Bondowner will recognize capital gain or loss equal to the difference between the amount realized on such sale, exchange, redemption or retirement (not including any amount attributable to accrued but unpaid interest that the United States Bondowner has not already included in gross income) and such United States Bondowner’s adjusted tax basis in the 2016A Bond. Any amount attributable to accrued but unpaid interest that the Bondowner has not already included in gross income will be treated as a payment of interest. A United States Bondowner’s adjusted tax basis in a 2016A Bond generally will equal the cost of the 2016A Bond to such United States Bondowner, reduced by any payments of principal or accrued original issue discount received by such United States Bondowner and increased by any accrued but unpaid interest (including original issue discount) the United States Bondowner has included in taxable income.
Backup Withholding. Bondowners will be subject to “backup withholding” of Federal income tax in the event they fail to furnish a taxpayer identification number to the Paying Agent or there are other, related compliance failures.
Market Discount. A United States Bondowner that acquires a 2016A Bond in a secondary market transaction may be subject to Federal income tax rules providing that accrued market discount will be taxed as ordinary income when realized on the sale or other disposition of a “market discount bond”. Dispositions subject to this rule include a redemption or retirement of a 2016A Bond. The market discount rules may limit a United States Bondowner’s deduction for interest expense for debt that is incurred or continued to purchase or carry a 2016A Bond. A market discount bond is defined generally as a debt obligation purchased subsequent to issuance, at a price that is less than the principal amount of the obligation, subject to a de minimis rule. The Code allows a taxpayer to compute the accrual of market discount for any 2016A Bond by using a ratable accrual method or a constant interest rate method. Also, a taxpayer may elect to include the accrued market discount in gross income each year as an alternative to including the total accrued discount in gross income
15 at the time of a disposition, in which case the tax basis of the 2016A Bond will be increased by the amount of discount included in gross income and the interest expense for debt that is incurred or continued to purchase or carry a 2016A Bond will not be limited.
Bond Premium. A holder who purchases such a 2016A Bond at a cost greater than its then principal amount (or, in the case of a 2016A Bond issued with original issue premium, at a price in excess of its adjusted issue price) will have amortizable bond premium. If the holder elects to amortize the premium under Section 171 of the Code (which election will apply to all 2016A Bonds held by the holder on the first day of the taxable year to which the election applies, and to all 2016A Bonds thereafter acquired by the holder), such a purchaser must amortize the premium using constant yield principles based on the purchaser’s yield to maturity. Amortizable bond premium is generally treated as an offset to interest income, but a reduction in basis is required for amortizable bond premium even though the premium has been applied to reduce interest payments. Purchasers of any 2016A Bonds who acquire such 2016A Bonds at issue or in a secondary market transaction at a premium should consult with their own tax advisors with respect to the determination and treatment of such premium for federal income tax purposes and with respect to state and local tax consequences of owning such 2016A Bonds.
Unearned Income Tax. A United States Bondowner that is an individual or estate, or a trust that does not fall into a special class of trusts that is exempt from such tax, will be subject to an additional 3.8% tax on the lesser of: (1) the United States Bondowner’s “net investment income” for the relevant taxable year and (2) the excess of the United States Bondowner’s adjusted gross income (increased by certain amounts of excluded foreign income) for the taxable year over a certain threshold (which in the case of individuals will be between $125,000 and $250,000, depending on the individual’s circumstances) (the “Unearned Income Tax”). A United States Bondowner’s net investment income will generally include its interest income and net gain from the disposition of the 2016A Bonds, unless such interest income and net gain is derived in the ordinary course of the conduct of a trade or business (other than a trade or business that consists of certain passive or trading activities). Net investment income may, however, be reduced by properly allocable deductions to such income. United States Bondowners that are individuals, estates or trusts are urged to consult their tax advisors regarding the applicability of the Unearned Income Tax to their income and gains from the 2016A Bonds.
Tax Consequences to Foreign Bondowners
Payments of interest on a 2016A Bond to a Bondowner that is not a United States Bondowner (a “Foreign Bondowner”) are not subject to United States federal income tax or withholding tax, provided that:
• the Foreign Bondowner is not actually or constructively a “10-percent shareholder” under Section 871(h) or 881(c)(3)(B) of the Code; • the Foreign Bondowner is not, for United States federal income tax purposes, a controlled foreign corporation with respect to which the University is a “related person” within the meaning of Section 881(c)(3)(C) of the Code; • the Foreign Bondowner is not a bank receiving interest described in Section 881(c)(3)(A) of the Code; • the certification requirements under Section 871(h) or 881(c) of the Code and regulations (summarized below) are met; and • the 2016A Bond interest is not effectively connected with the conduct by the Foreign Bondowner of a trade or business in the United States under Section 871(b) or Section 882 of the Code.
In order to obtain the exemption from income and withholding tax, either (1) the Foreign Bondowner must provide its name and address, and certify, under penalties of perjury on Internal Revenue Service Form W-8BEN, W-8BEN-E, W- 8IMY or W-8EXP, as applicable, to the University, its paying agent, or other applicable withholding agent as the case may be, that such Bondowner is a Foreign Bondowner or (2) a securities clearing organization, bank or other financial institution that holds customers’ securities in the ordinary course of its trade or business (“Financial Institution”) and holds a 2016A Bond on behalf of the Foreign Bondowner must certify, under penalties of perjury, to the University or its paying agent that such certificate has been received from the Bondowner by it or by any intermediary Financial Institution and must furnish the University or its paying agent with a copy of the certificate. A certificate is effective only with respect to payments of interest made to the certifying Foreign Bondowner after issuance of the certificate in the calendar year of its issuance and the two immediately succeeding calendar years. A Foreign Bondowner who does not satisfy the exemption requirements is generally subject to United States withholding tax on payments of interest or accrual of original issue discount.
16
Interest on a 2016A Bond that is effectively connected with the conduct of a United States trade or business by the Foreign Bondowner is generally subject to United States federal income tax in the same manner as with a United States Bondowner, except to the extent otherwise provided under an applicable tax treaty. Effectively connected interest income received by a corporate Foreign Bondowner may also, under certain circumstances, be subject to an additional branch profits tax. Effectively connected interest income will not be subject to withholding tax if the Foreign Bondowner delivers a properly completed Internal Revenue Service Form W-8ECI to the University or its paying agent.
Sale, Exchange, Redemption or Retirement of the 2016A Bonds. In general, a Foreign Bondowner of a 2016A Bond will not be subject to United States federal income or withholding tax on the receipt of payments of principal on a 2016A Bond and will not be subject to United States federal income tax on any gain recognized on the sale, exchange, redemption, retirement or other taxable disposition of such 2016A Bond unless:
• the Foreign Bondowner is a nonresident alien individual who is present in the United States for 183 or more days in the taxable year of disposition and certain other conditions are met under Section 871(a)(2) of the Code; • the Foreign Bondowner is required to pay tax pursuant to the provisions of United States tax law applicable to certain United States expatriates; or • the gain is effectively connected with the conduct of a United States trade or business by the Foreign Bondowner (or pursuant to an applicable tax treaty is attributable to a United States permanent establishment of the Foreign Bondowner).
FATCA
Under the Foreign Account Tax Compliance Act (“FATCA”), foreign financial institutions (which generally include hedge funds, private equity funds, mutual funds, securitization vehicles and other investment vehicles regardless of their size) that are not otherwise exempt from FATCA must comply with information reporting rules with respect to their U.S. account holders and investors or, regardless of the treatment of payments on the 2016A Bonds under the general income tax rules applicable to Foreign Bondowners that are discussed above, confront a separate withholding tax. Specifically, FATCA requires that foreign financial institutions enter into an agreement with the United States government to collect and provide the IRS substantial information regarding U.S. account holders of such foreign financial institution, comply with the terms of an applicable intergovernmental agreement between the United States and such foreign financial institution’s jurisdiction of formation (an “IGA”), or establish an exemption from FATCA. Additionally, FATCA requires certain foreign entities that are not financial institutions to provide the withholding agent with a certification identifying the substantial U.S. owners of such foreign entity, if any. For this purpose, “withholdable payments” include U.S. source payments of taxable interest and the entire gross proceeds from the sale of any debt instruments of U.S. issuers. FATCA withholding on gross proceeds generally will apply to payments of gross proceeds made after December 31, 2018. The FATCA withholding tax applies regardless of whether the payment would otherwise be exempt from U.S. nonresident withholding tax (e.g., under an income tax treaty, the portfolio interest exemption or as capital gain). FATCA withholding does not apply to withholdable payments made directly to foreign governments, international organizations, foreign central banks of issue and individuals, and the Treasury is authorized to provide additional exceptions.
The IRS announced in Notice 2014-33, I.R.B. 2014-41 released on May 2, 2014, that calendar years 2014 and 2015 would be regarded as a transition period for purposes of IRS enforcement and the administration of FATCA’s due diligence, reporting, and withholding provisions. The IRS will take into account the extent to which a foreign financial institution or other foreign entity has made good faith efforts to comply with the requirements in determining whether to provide enforcement relief during this transition period. The IRS further announced in Notice 2015-66, I.R.B. 2015-41 released on September 18, 2015, that consistent with the IRS transition period treatment, foreign financial institutions resident in jurisdictions that have signed IGAs or reached an agreement in substance on the text of an IGA, but have not brought the IGA into force will be treated as complying with FATCA’s provisions so long as the partner jurisdiction continues to demonstrate firm resolve to bring the IGA into force and any information that would have been reportable under the IGA on September 30, 2015, is exchanged by September 30, 2016, together with any information that is reportable under the IGA on September 30, 2016. Likewise, the IRS announcement states that the foreign financial institution resident in jurisdictions that do not have an IGA in force will not be subject to withholding under FATCA even if the partner jurisdiction has not exchanged 2014 information by September 30, 2015, as the long as the partner jurisdiction notifies the U.S. competent authority before September 30, 2015, of the delay and provides assurance that the jurisdiction is making good faith efforts to exchange the information as soon as possible.
The 2016A Bonds are subject to the above FATCA provisions. Accordingly, holders (particularly Foreign Bondowners) should consult their tax advisors regarding the applicability of the FATCA requirements.
17
Other Matters. Special rules not discussed in this summary may apply to certain Foreign Bondowners that are classified for federal income tax purposes as “controlled foreign corporations,” “passive foreign investment companies,” “expatriates,” “surrogate foreign corporations,” “personal holding companies,” or corporations that accumulate earnings to avoid United States federal income tax.
State, Local and Foreign Taxes
Bondowners may be subject to state, local, or foreign taxes with respect to an investment in the 2016A Bonds. Prospective investors are urged to consult their tax advisors with respect to the state, local and foreign tax consequences of an investment in the 2016A Bonds.
ERISA Considerations
The Employee Retirement Income Security Act of 1974, as amended (“ERISA”), imposes certain fiduciary obligations and prohibited transaction restrictions on employee pension and welfare benefit plans subject to ERISA (“ERISA Plans”). Section 4975 of the Code imposes essentially the same prohibited transaction restrictions on tax-qualified retirement plans described in Section 401(a) and 403(a) of the Code, which are exempt from tax under section 501(a) of the Code, other than governmental and church plans as defined herein (“Qualified Retirement Plans”), on Individual Retirement Accounts (“IRAs”) described in Section 408 and 408(a) of the Code, and on certain other plans described in Section 4975(e)(1) of the Code (collectively, “Tax-Favored Plans”).
Certain employee benefit plans, such as governmental plans (as defined in Section 3(32) of ERISA), certain church plans (as defined in Section 3(33) of ERISA or Section 4975(g)(3) of the Code) for which no election has been made under Section 410(d) of the Code, and non-U.S. benefit plans (as described in Section 4(b)(4) of ERISA), are not subject to the requirements of ERISA or Section 4975 of the Code. While assets of such plans may be invested in the 2016A Bonds without regard to the ERISA and Code considerations described below, they may be nevertheless subject to the provisions of applicable federal, state, local or foreign law that are similar to these ERISA and Code provisions. Accordingly, fiduciaries of such plans should consult with their counsel in considering whether to purchase the 2016A Bonds.
In addition to the imposition of general fiduciary obligations, including those of investment prudence and diversification and the requirement that a plan’s investment be made in accordance with the documents governing the plan, Section 406 of ERISA and Section 4975 of the Code prohibit a broad range of transactions involving assets of ERISA Plans and Tax- Favored Plans and entities whose underlying assets include plan assets by reason of ERISA Plans or Tax-Favored Plans investing in such entities (collectively, “Benefit Plans”) and persons who have certain specified relationships to the Benefit Plans (“Parties in Interest” or “Disqualified Persons”), unless a statutory or administrative exemption is available. The definitions of “Party in Interest” and “Disqualified Person” are expansive. While other entities may be encompassed by these definitions, they include, most notably: (1) a fiduciary with respect to a plan; (2) a person providing services to a plan; and (3) an employer or employee organization any of whose employees or members are covered by the plan. Certain Parties in Interest (or Disqualified Persons) that participate in a prohibited transaction may be subject to a penalty (or an excise tax) imposed pursuant to Section 502(i) of ERISA (or Section 4975 of the Code) unless a statutory or administrative exemption is available.
Plan Asset Issues. Certain transactions involving the purchase, holding or transfer of the 2016A Bonds might be deemed to constitute prohibited transactions under ERISA and the Code if assets of the University were deemed to be assets of a Benefit Plan. The United States Department of Labor has promulgated regulations at 29 C.F.R. section 2510.3- 101, as modified by Section 3(42) of ERISA (the “Plan Asset Regulation”) describing what constitutes the assets of a Benefit Plan with respect to the Benefit Plan’s investment in an entity for purposes of certain provisions of ERISA and Section 4975 of the Code, including the fiduciary responsibility provisions of Title I of ERISA and Section 4975 of the Code. Under the Plan Asset Regulations, the assets of the University would be treated as plan assets of a Benefit Plan for purposes of ERISA and the Code only if the Benefit Plan acquires an “equity interest” in the University and none of the exceptions contained in the Plan Asset Regulation is applicable. An equity interest is defined under the Plan Asset Regulation as an interest in an entity other than an instrument which is treated as indebtedness under applicable local law and which has no substantial equity features.
Although there is little statutory or regulatory guidance on this subject, and there can be no assurances in this regard, it appears that the 2016A Bonds should be treated as debt without substantial equity features for purposes of the Plan Assets Regulation. Accordingly, the assets of the University should not be treated as the assets of plans investing in the 2016A Bonds. If the University’s assets were deemed to constitute “plan assets” pursuant to the Plan Asset Regulation, transactions that the University might enter into, or may have entered into in the ordinary course of business, might constitute non-exempt prohibited transactions under ERISA and/or Section 4975 of the Internal Revenue Code.
18
Prohibited Transaction Exemptions. However, without regard to whether the 2016A Bonds are treated as an equity interest for such purposes, the acquisition or holding of 2016A Bonds by or on behalf of a Benefit Plan could be considered to give rise to a prohibited transaction if the University, its affiliates and other parties connected with the offering (such as the Underwriters), or any of their respective affiliates, is or becomes a Party in Interest or a Disqualified Person with respect to such Benefit Plan. In such case, certain status-based exemptions from the prohibited transaction rules could be applicable depending on the type and circumstances of the plan fiduciary making the decision to acquire a 2016A Bond. Included among these exemptions are:
• Prohibited Transaction Class Exemption (“PTCE”) 96-23, which exempts certain transactions effected on behalf of a Benefit Plan by an “in-house asset manager”; • PTCE 90-1, which exempts certain investments by “insurance company pooled separate accounts”; • PTCE 95-60, which exempts certain investments by “insurance company general accounts”; • PTCE 91-38, which exempts certain investments by bank collective investment funds; and • PTCE 84-14, which exempts certain transactions effected on behalf of a Benefit Plan by a “qualified professional asset manager.”
Note that IRAs (and certain other plans described in Section 4975(e)(1)) are typically not represented by banks, insurance companies or registered investment advisors so that, practically speaking, these status-based exemptions may be unavailable.
There is also a statutory exemption in Section 408(b)(17) of ERISA and Section 4975(d)(20) of the Code (which may be available to IRAs as well as to other Benefit Plans) (the “Statutory Exemption”). The Statutory Exemption covers transactions involving “adequate consideration” with persons who are Parties in Interest or Disqualified Persons solely by reason of their (or their affiliate’s) status as a service provider to the Benefit Plan involved and none of which is a fiduciary with respect to the Benefit Plan assets involved (or an affiliate of such a fiduciary).
The availability of each of these PTCEs and/or the Statutory Exemption is subject to a number of important conditions which the Benefit Plan’s fiduciary must consider in determining whether such exemptions apply. There can be no assurance that any class or other exemption will be available with respect to any particular transaction involving the 2016A Bonds, or that, if available, the scope of relief provided by these exemptions will necessarily cover all acts that might be construed as prohibited transactions.
Any ERISA Plan fiduciary considering whether to purchase 2016A Bonds on behalf of an ERISA Plan should consult with its counsel regarding the applicability of the fiduciary responsibility and prohibited transaction provisions of ERISA and the Code to such investment and the availability of any of the exemptions referred to above. Persons responsible for investing the assets of employee benefit plans that are not subject to the requirements of ERISA or Section 4975 of the Code should seek similar counsel with respect to the prohibited transaction provisions of the Code and the applicability of any similar federal, state, local or foreign law.
Representation. It is the responsibility of each purchaser (and each subsequent transferee) of the 2016A Bonds to ensure that its purchase, holding and transfer of such 2016A Bonds is not a prohibited transaction. Each purchaser of a 2016A Bond will be deemed to have represented and warranted that either under ERISA or applicable Similar Laws (1) it is not a Benefit Plan, such as an IRA, and no portion of the assets used to acquire or hold the 2016A Bonds constitutes assets of any Benefit Plan or (2) the acquisition, holding and disposition of a 2016A Bond will not constitute a prohibited transaction under Section 406 of ERISA or Section 4975 of the Code or similar violation under any applicable Similar Laws for which there is no applicable statutory, regulatory or administrative exemption.
The foregoing discussion is general in nature and is not intended to be all-inclusive. Due to the complexity of these rules and the penalties that may be imposed upon persons involved in non-exempt prohibited transactions, it is particularly important that fiduciaries, or other persons considering purchasing 2016A Bonds on behalf of, or with the assets of, any Benefit Plan, consult with their counsel regarding the potential applicability of ERISA, Section 4975 of the Code and any similar laws to such investment and whether an exemption would be applicable to the purchase and holding of the 2016A Bonds. The acquisition, holding and, to the extent relevant, disposition of 2016A Bonds by or to any Benefit Plan is in no respect a representation by the University (or any affiliate or representative of the University) that such an investment meets all relevant legal requirements with respect to investments by such Benefit Plans generally or any particular Benefit Plan, or that such an investment is appropriate for Benefit Plans generally or any particular Benefit Plan.
19
ENFORCEABILITY OF REMEDIES
The remedies available to the Trustee upon an Event of Default under the Indenture or other documents described herein are in many respects dependent upon regulatory and judicial actions, which are often subject to discretion and delay. Under existing constitutional and statutory law and judicial decisions, including specifically Title 11 of the United States Code, the remedies specified by the federal bankruptcy laws, the Indenture and the various related documents may not be readily available or may be limited. The various legal opinions to be delivered concurrently with the delivery of the 2016A Bonds will be qualified as to the enforceability of the various legal instruments, by limitations imposed by bankruptcy, reorganization, insolvency or other similar laws affecting the rights of creditors generally and by principles of equity.
FINANCIAL ADVISOR
The University has retained Prager & Co., LLC, San Francisco, California, as financial advisor (the “Financial Advisor”) in connection with the issuance of the 2016A Bonds.
In connection with this Offering Memorandum, the Financial Advisor has relied upon University officials and other sources that have access to relevant data to provide accurate information for this Offering Memorandum, and the Financial Advisor has not been engaged, nor has it undertaken, to independently verify the accuracy of such information. The Financial Advisor is not a public accounting firm and has not been engaged by the University to compile, review, examine or audit any information in this Offering Memorandum in accordance with accounting standards.
UNDERWRITING
The Underwriters have agreed, subject to certain conditions, to purchase the 2016A Bonds from the University. The Underwriters will be obligated to purchase all of the 2016A Bonds, if any are purchased, and intend to make a bona fide offering of the 2016A Bonds to purchasers in accordance with applicable law at the prices set forth therein.
INDEPENDENT AUDITOR’S REPORT
The consolidated financial statements of the University as of and for the fiscal years ended May 31, 2015 and May 31, 2016, included in Appendix B to this Offering Memorandum, have been audited by Moss Adams LLP, independent public accountants, as indicated in its report thereon. Moss Adams LLP has not been engaged to perform and has not performed, since the date of the report included herein, any procedures on the consolidated financial statements addressed in that report. Moss Adams LLP has also not performed any procedures relating to this Offering Memorandum.
CONFLICTS OF INTEREST
From time to time, Kutak Rock LLP serves as counsel to the Underwriters in matters unrelated to the University or the 2016A Bonds.
RATINGS
Moody’s Investors Service and Fitch Ratings Inc. have assigned their ratings of A3 and A, respectively, to the 2016A Bonds. Such ratings and outlooks reflect only the views of such rating agencies. The University has furnished such rating agencies with certain information and materials relating to the 2016A Bonds that have not been included in this Offering Memorandum. Generally, rating agencies base their ratings on such information and materials and on investigations, studies and assumptions made by the rating agencies themselves. There is no assurance that the ratings mentioned above will remain in effect for any given period of time or that they might not be lowered, suspended or withdrawn entirely by such rating agency, if in its judgment circumstances so warrant. Any such downward change in, suspension of or withdrawal of any ratings might have an adverse effect on the market price or marketability of the 2016A Bonds.
MATERIAL LITIGATION
There are no actions, suits or claims pending or, to the knowledge of the officers of the University pending or threatened which would restrain or enjoin the issuance, sale, execution or delivery or the 2016A Bonds or in any way contesting or affecting the validity of the 2016A Bonds, any action of the University taken with respect to the issuance or sale thereof, the power of the University to pay the principal, premium, if any and interest on the 2016A Bonds, the existence or powers of the University relating to the issuance of the 2016A Bonds, or the power of the University to: (1) pledge its Unrestricted Gross Revenues; or (2) make a negative pledge on the Core Campus as security for the 2016A Bonds.
20
CERTAIN LEGAL MATTERS
Legal matters incident to the authorization, issuance and sale of the 2016A Bonds by the University are subject to the legal opinion of Kutak Rock LLP, Spokane, Washington, Special Counsel to the University. Special Counsel has reviewed this Offering Memorandum only to confirm that the portions of it describing the 2016A Bonds and the authority to issue them conform to the 2016A Bonds and the applicable laws under which they are issued.
Certain legal matters will be passed upon by Foster Pepper PLLC, Seattle, Washington, Counsel to the Underwriters. Any opinion of Underwriters’ counsel will be delivered solely to the Underwriters, will be limited in scope, and cannot be relied upon by investors. Certain legal matters pertaining to the redemption, payment and defeasance of the Refunded Bonds will be passed upon by the Pacifica Law Group LLP, Counsel to the Washington Higher Education Facilities Authority.
CONTINUING DISCLOSURE
Because the 2016A Bonds are not municipal securities, the University is not required to undertake continuing disclosure with respect to the 2016A Bonds under Rule 15c2-12 promulgated by the Securities and Exchange Commission (the “Rule”). However, the University has agreed in the Indenture to make available to existing and potential holders of the 2016A Bonds, on a voluntary basis, information substantially identical to that required under the continuing disclosure undertaking it has previously entered into in connection with the 2013 Bonds to ensure compliance with the Rule. Holders and potential holders of the 2016A Bonds may obtain copies of the information provided by the University under such undertaking on Electronic Municipal Market Access, a service of the Municipal Securities Rulemaking Board (“EMMA”). Such undertaking terminates when the 2013 Bonds are paid or deemed paid in full. The University has covenanted in the Indenture that unless otherwise available on EMMA or any successor thereto or to functions thereof, copies of the University’s audited financial statements will either be posted on the University’s website or filed with the Trustee. Failure to provide the information described in this paragraph will not constitute an Event of Default under the Indenture.
MISCELLANEOUS
All of the summaries or descriptions of provisions of the Indenture, the Intercreditor and Collateral Agency Agreement, the Security Agreement and other documents are made subject to all of the provisions of law and such documents, and these summaries do not purport to be complete statements of such provisions. Reference is hereby made to such documents for further information in connection therewith. Copies of the aforementioned documents may be obtained from the Trustee in Seattle, Washington.
The agreements of the University with the Bondowners are fully set forth in the Indenture. This Offering Memorandum is not to be construed as a contract with the purchasers of the 2016A Bonds. Any statements herein involving matters of opinion or estimates, whether or not expressly so stated, are intended merely as such and not as representations of fact.
The execution and delivery of this Offering Memorandum has been duly authorized by the University.
Dated as of October ___, 2016.
THE CORPORATION OF GONZAGA UNIVERSITY
By: Vice President for Finance
21 [THIS PAGE INTENTIONALLY LEFT BLANK]
APPENDIX A
SELECTED INFORMATION CONCERNING THE UNIVERSITY INCLUDING UNAUDITED FINANCIAL INFORMATION
The information within this Appendix A has been provided solely by the University and is believed to be accurate, but has not been verified independently by the Underwriters. No representation whatsoever as to the accuracy, adequacy or completeness of such information is made by the Underwriters.
General
The Corporation of Gonzaga University (the “University” or “Gonzaga”) is a non-profit Washington corporation that owns and operates a coeducational university emphasizing undergraduate liberal arts as well as professional and graduate education in the Catholic, Jesuit tradition. The University is one of 28 Jesuit affiliated colleges and universities across the country. Members of the Society of Jesus, called Jesuits (“S.J.”), founded the University in 1887, two years before Washington became a state. The University was incorporated in 1894 as Gonzaga College and changed its name to Gonzaga University in 1912. The 2012-13 fiscal year marked the University’s 125th anniversary and the 100th anniversary of The Gonzaga School of Law (the “School of Law”). The 2013-14 fiscal year marked the 50th anniversary of the Gonzaga in Florence program.
The University has, since its founding, been affiliated with the Catholic Church. The University, however, welcomes persons of all religious persuasions, and large numbers of non-Catholics are at the University as members of the student body, faculty, staff and administration.
University headcount enrollment for the fall term of the 2016-2017 academic year is 7,572 students. Of these, 5,160, or approximately 68%, are enrolled as undergraduates. Of the graduate students, 312, or approximately four percent of total student enrollment, are enrolled in the School of Law. The remaining 2,100 graduate students are enrolled in master’s degree programs in business administration, education, organizational leadership, communication leadership, nursing, engineering, or liberal arts or in the three doctorate programs, one Ph.D. in leadership studies and two nursing practice doctorates.
The University is located on a 152-acre campus in a residential area of Spokane, Washington. The undergraduate student body represents 47 states and 35 foreign countries. Approximately 52% of the undergraduate student body comes from outside Washington State. The University also owns and operates a campus in Florence, Italy with academic capacity for approximately 175 students.
For the fall semester 2015, there were 426 full-time Jesuit, religious and lay faculty, with all classes taught by professors. The University has a faculty to student ratio of 12 to 1 and average class size was approximately 24 students.
Approximately 31% of gross operating revenue is returned to students in the form of financial aid, with approximately 98% of undergraduate students receiving some form of need or merit-based financial aid.
On March 31, 2016, the University entered into an agreement with the University of Washington, an institution of higher education and an agency of the State of Washington, School of Medicine to provide faculty, student support services, and facilities for the University of Washington School of Medicine – Gonzaga University, beginning in July 2016. The program will expand the University of Washington’s Washington, Wyoming, Alaska, Montana and Idaho (“WWAMI”) medical education program in Spokane, with an emphasis on meeting the needs of rural and medically underserved communities in eastern Washington. Washington State University has also announced plans to establish a new medical school in Spokane, Washington.
Among others, current national rankings include:
• U.S. News & World Report lists the University as the fourth best regional university (west region), second best in the region for first-year student retention and graduation rate, and the thirteenth best value in the region.
• USA Today ranked the University among the 10 best Roman Catholic colleges and universities in the nation.
A-1
• Kiplinger ranked the University No. 18 in its list of the 25 best college values in the west/southwest.
• Money Magazine lists the University as the best value among private colleges and universities in the Pacific Northwest (Alaska, Idaho, Montana, Oregon, and Washington) and No. 8 best private university in the nation for merit aid.
Mission Statement
The University’s Mission Statement:
Gonzaga University is an exemplary learning community that educates students for lives of leadership and service for the common good. In keeping with its Catholic, Jesuit, and humanistic heritage and identity, Gonzaga models and expects excellence in academic and professional pursuits and intentionally develops the whole person -- intellectually, spiritually, physically and emotionally.
Through engagement with knowledge, wisdom and questions informed by classical and contemporary perspectives, Gonzaga cultivates in its students the capacities and dispositions for reflective and critical thought, lifelong learning, spiritual growth, ethical discernment, creativity, and innovation.
The Gonzaga experience fosters a mature commitment to dignity of the human person, social justice, diversity, intercultural competence, global engagement, solidarity with the poor and vulnerable, and care for the planet. Grateful to God, the Gonzaga community carries out this mission with responsible stewardship of our physical, financial and human resources.
Spokane and the Inland Northwest
Spokane, Washington, forms the hub of the “Inland Northwest,” a region encompassing parts of four states and southern Canada and relying on the area’s business, service and transportation facilities. With a population of approximately 475,000 in the metropolitan area, the City of Spokane (the “City”) offers many opportunities for work and relaxation for University students.
The campus is adjacent to the Spokane River, where the Washington Centennial Trail extends 39 miles between northwest Spokane and Coeur d’Alene, Idaho. Students enjoy biking, rollerblading, running and walking along the trail. The University is one of six colleges and universities that together comprise the Spokane University District of Spokane (the “University District”), a master planned corridor along the north and south sides of the Spokane River that concentrate current and future education and research activities adjacent to downtown Spokane. The downtown area of the City is just a few blocks from the campus, and the City’s skywalk system, the nation’s second largest, provides easy access to shopping, dining and entertainment. A 12,000-seat civic entertainment arena is also within walking distance of the campus.
The City boasts many parks, including the 100-acre Riverfront Park in the heart of the City. In addition, there are 15 area public golf courses, skating rinks, theaters and art galleries. A symphony orchestra, civic theater and professional athletic teams add to the cultural and entertainment opportunities of the region.
Nearby recreation areas are easily accessible to students. Seventy-six lakes and five ski areas provide swimming, water skiing and winter sports activities.
Corporate Structure
The University is governed by a Board of Trustees (each individually a “Trustee” and collectively the “Board of Trustees” or “Trustees”), which is responsible for the management of the affairs of the University. The University is a non-profit member corporation established under chapter 24.03 of the Revised Code of Washington. Under the University’s Articles of Incorporation and Bylaws, a separate Board of Members exists with responsibility for the University’s mission and for spiritual guidance (each individually a “Member” and collectively the “Board of Members”).
A-2
The Corporation of Gonzaga University is a nonprofit corporation, incorporated under the laws of the State of Washington, governed by a Jesuit Board of Members and the predominantly lay Board of Trustees. The Boards work collegially and collaboratively with one another and the President of the University (the “President”) who is appointed by the Board of Trustees.
The Board of Trustees currently consists of 34 elected Trustees. In addition, the President is an ex officio voting member of the Board of Trustees. Term limits apply.
The Board of Members currently consists of eight Jesuits. Three Members are elected by a majority vote of the members of the Jesuit Community active in and missioned to the University. According to the University’s Bylaws, the Rector of the Gonzaga Jesuit Community and these three elected persons then elect three to five additional persons to complete the Board of Members.
The Board of Members has the right to elect three Jesuits to the Board of Trustees. The Board of Trustees elects the remainder of the Board of Trustees. At least 22% of the total number of Trustees must be Jesuits. The University’s Board of Trustees currently includes seven Jesuits.
Most Jesuits employed by the University are assigned or “missioned” to the University by the Provincial of the Oregon Province. The remaining Jesuits employed by the University are missioned to the University by one of the Provincials of the other nine Jesuit Provinces in the United States.
Consent by a majority vote of the Board of Members and the Board of Trustees is required for transactions involving University assets, including acquisitions, sales, transfers, gifts, loans, pledges, mortgages, encumbrances, or capital expenditures, where the value of the transaction is greater than $15,000,000.
Under its Articles of Incorporation, no part of the net earnings of the University shall inure to the benefit of the University’s Trustees, Members, officers or other private persons, except that the University may pay reasonable compensation for services rendered and make payments and distributions in furtherance of its tax-exempt purposes.
As of July 2016, the members of the Board of Trustees, and their principal occupations and their primary residences were as follows:
Scott Morris, Board Chair Paul W. Brajcich, Board Vice Chair President and CEO, Avista Corp Retired, Partner, KPMG, LLP Spokane, Washington Seattle, Washington
Timothy Barnard Fred A. Brown CEO, Barnard Construction Company Inc. CEO, Next IT Corporation Bozeman, Montana Spokane, Washington
Rebecca Cates Timothy Clancy, S.J. Retired, Vice- President/Treasurer, Expeditors Professor of Philosophy, Gonzaga University International Spokane, Washington Cle Elum, Washington
Gerri Craves Donald Curran Co-founder, College Success Foundation Attorney at Law, Delay, Curran, Thompson, Seattle, Washington Pontarolo, & Walker , P.S. Spokane, Washington
John Fitzgibbons, S.J. Theresa Gee President, Regis University Co-Owner, Gee Automotive Group Denver, Colorado Post Falls, Idaho
Michael Graham, S.J. Carl Grether President, Xavier University Owner, Thomas Grether Farms Cincinnati, Ohio Somis, California
A-3
John Hemmingson Mary Herche Chairman, Lakeside Capital Group, LLC Seattle, Washington Liberty Lake, Washington
Christine Johnson Christy Larsen Chancellor, Community Colleges of Spokane San Miguel, California Spokane, Washington
David J. Leigh, S.J. Rita Illig Liebelt Professor of English, Seattle University President, Illig Construction Company Seattle, Washington Los Angeles, California
John Luger Jack McCann President, JDL Enterprises President, Jack McCann Company Bellevue, Washington Kent, Washington
Thomas McCarthey Thayne M. McCulloh, D.Phil. Salt Lake City, Utah President, Gonzaga University Spokane, Washington
Kevin D. McQuilkin Jim Powers Managing Director, Wells Fargo Securities Partner, Powers Energy Group New Canaan, Connecticut Denver, Colorado
Edward Reese, S.J. D. Michael Reilly President, St. Ignatius College Preparatory Attorney at Law, Director, Lane Powell PC San Francisco, California Medina, Washington
Kathleen Magnuson Sheppard Peter F. Stanton Spokane, Washington Chairman & CEO, Washington Trust Bank Spokane, Washington
William Stempsey, S.J. Edward Taylor Professor of Philosophy Vice Provost & Dean, Undergraduate Academic College of the Holy Cross Affairs Worchester, Massachusetts University of Washington Seattle, Washington
Thatcher Thompson Dr. Diane Timberlake Capital World Investors Physician/Clinical Associate Professor San Francisco, California University of Washington Seattle, Washington
Robert Tomlinson James Voiss, S.J. President & CEO, Tomlinson Consulting Assistant Vice President, Mission & Ministry Spokane, Washington Gonzaga University Spokane, Washington
Alvin J. Wolff, Jr. Chairman, The Wolff Company, LLC Scottsdale, Arizona
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
A-4
The University also has a Board of Regents presently comprised of 68 persons, most of whom are otherwise unaffiliated with the University. The function of the Regents is to serve as regional ambassadors for the University, to advise the University and its Board of Trustees on financial and other affairs, and to be active in financial support of the University.
Officers and Senior Administrators of the University
The following table sets forth the names of the President of the University and the President’s Cabinet, a body of senior administrative leaders and principal executive officers of the University, along with their positions and tenure in office. A brief statement of the duties and background of each of the individuals appears following the table (alphabetical order following the President).
Position Name Position Since Thayne M. McCulloh, D. Phil* President 2009 Judith Biggs Garbuio, Ph.D. Vice President for Student Development 2013 Frank Case, S.J. Vice President of the University 2011 Bernard J. Coughlin, S.J. Chancellor of the University 1996 Patricia O’Connell Killen, Academic Vice President 2010 Ph.D.* Pat Lee, S.J. Vice President for Mission & Ministry 2016 Maureen McGuire, J.D.* General Counsel 2013 Charles J. Murphy* Vice President for Finance 1985 Robert “Skip” Myers Vice President for Policy, Planning and 2015 Administration Joseph Poss Vice President for University Advancement 2011 Raymond F. Reyes, Ph.D. Associate Academic Vice President & Chief 1998 Diversity Officer Michael L. Roth Athletic Director 1997 John D. Sklut, J.D. Chief of Staff 2015 Joseph P. Smith Associate Vice President for Finance 2010 Borre B. Ulrichsen Chief Information Officer 2016 Kirk J. Wood-Gaines Assistant Vice President for Human Resources 2013
*Officer of the University, as defined by the Bylaws
Thayne McCulloh, D.Phil, President. Dr. McCulloh was appointed President in July 2010, after serving one year as Interim President upon the retirement of Fr. Robert Spitzer, S.J. in July 2009. Prior to his selection as President, Dr. McCulloh served the University as the Interim Academic Vice President, Vice President for Administration and Planning, Associate Academic Vice President, Dean of Student Financial Services, Dean of Student Academic Services, Assistant Dean of Students, Director of Housing and Residence Life, and Coordinator of Residence Life. Dr. McCulloh holds a D.Phil.in experimental social psychology from Oxford University and a B.A. in psychology and sociology from the University.
Judith Biggs Garbuio, Ph.D., Vice President for Student Development. Dr. Garbuio was appointed Vice President for Student Development in July 2013. She came to the University from the University of Southern California (“USC”), where she worked in a succession of student affairs positions since 1990. Her educational background includes a B.S. in education from Emporia State University, an M.A. in college student personnel from Bowling Green State University, and a Ph.D. in educational policy planning and administration from USC.
Rev. Frank Case, S.J., Ph.D., Vice President of the University. Fr. Frank Case, S.J. is the Vice President of the University, having previously served as the Vice President for Mission from 2011 to January 2016. He studied economics at Washington University in St. Louis, receiving a Ph.D. in 1980. He taught in the Economics Department at Seattle University from 1975 until 1986 as an assistant and then associate professor. In 1981 he was appointed the Superior of the Seattle University Jesuit Community and in 1986 Provincial of the Oregon Province. In 1990 Fr. Peter- Hans Kolvenbach, the General Superior of the Jesuits, invited him to Rome to serve as the Regional Assistant for the A-5
United States, a role in which he served for 15 years. In 2005, he was asked to take the position of General Secretary of the Society of Jesus for the years leading up to a general Congregation in 2008. He returned to the United States at the end of the Congregation. After a sabbatical year at Seattle University, he served two years there as the Jesuit Assistant for the Business and Law Schools prior to joining the University.
Rev. Bernard J. Coughlin, S.J., Chancellor of the University. Fr. Coughlin became Chancellor of the University in September 1996. Prior to that he was President of the University from 1974 to 1996. He previously served as a professor and Dean of the School of Social Service at Saint Louis University; Fulbright Lecturer, Universidad Javeriana, Bogata, Columbia and Universidad Bolivariana, Medellin, Colombia; a social work educational consultant in Ecuador, Peru, Chile and Guatemala; a research assistant for the Juvenile Probation Project, Los Angeles, California; a counselor at a boys’ industrial school in Topeka, Kansas; and an Instructor and Senior Director of Campion High School, Prairie du Chien, Wisconsin. Fr. Coughlin graduated from Saint Louis University with a B.A.. He holds additional degrees from Saint Louis University in philosophy and theology. He also holds a master’s degree in social welfare from Brandeis University.
Patricia O’Connell Killen, Ph.D., Academic Vice President. Dr. Killen joined the University as its chief academic officer in July of 2010. Prior to assuming this position she served for four years as Provost and Dean of Graduate Studies at Pacific Lutheran University, where she had taught for 17 years, and held multiple faculty and academic administrative leadership positions. She also is tenured at the rank of professor in the University’s Department of Religious Studies. Dr. Killen is widely published and consults nationally on religion in public life, faculty development and student learning. In 2006 she received the American Academy of Religion Teaching Excellence Award and also holds an Arnold and Lois Graves Foundation Award for Outstanding Humanities Teachers. Dr. Killen received a B.A. from the University in religious studies and an M.A. and Ph.D. in religious studies from Stanford University.
Rev. Pat Lee, S.J., Ed.D., Vice President for Mission and Ministry. Fr. Lee was appointed Vice President for Mission and Ministry in June 2016. Most recently, Fr. Lee served the Society of Jesus as the Superior of Community of the Holy Land in Jerusalem, Israel. Fr. Lee previously served as Provincial of the Oregon Province of the Society of Jesus from 2008 to 2014 and as the University’s Vice President for Mission from 2005 to 2008. Fr. Lee received a B.A. and M.Ed. from the University, an M.Div. from Weston School of Theology, and an Ed.D. from the University of San Francisco.
Maureen McGuire, J.D., General Counsel. Ms. McGuire began serving as General Counsel in January 2013. She received her Juris Doctor from the School of Law after graduating from the University of Washington with a B.A. in Political Science. Following a judicial clerkship at the Washington State Court of Appeals, Ms. McGuire enjoyed a long career in the Washington State Attorney General’s Office, Spokane Division, from 1983 until 2013. During that time, she worked 24 years in the Education Division representing public colleges and universities. In 1998 she was appointed the Spokane Interdivisional Section Chief and supervised attorneys and staff in six Divisions of the Attorney General’s Office while continuing to represent higher education clients and other state agencies.
Charles J. Murphy, Vice President for Finance. Mr. Murphy was appointed Vice President for Finance in 1985. He had been Controller at the University since 1978. Prior to coming to the University, his professional experience included public accounting and private industrial accounting positions. He received a B.A. from the University.
Robert “Skip” Myers, Ph.D., Vice President for Policy, Planning and Administration. Dr. Myers joined the University in September 2015, initially serving as the Interim Vice President for Planning and Administration. Dr. Myers was later named the Vice President for Policy, Planning and Administration. Dr. Myers has over 30 years of leadership experience in private and public higher education, including as Executive Vice President and Chief Operating Officer of the University of Maryland University College, Chancellor at Embry-Riddle Aeronautical University Worldwide, and President of Daniel Webster College. Dr. Myers earned a B.A. and M.A. in journalism and a Ph.D. in higher education policy, planning and leadership from the University of Maryland.
Joseph Poss, Vice President for University Advancement. Mr. Poss was appointed to this leadership role in October 2011. He oversees the University’s Development, Alumni Relations and Marketing/Communications operations. He joined University Relations in 1998 and served in several positions in the Development office during his nearly 15 years as a member of the University Relations (later renamed University Advancement) team. Mr. Poss received a B.A. in criminal justice from the University.
Raymond F. Reyes, Ph.D., Associate Academic Vice President and Chief Diversity Officer. Dr. Reyes joined the University in 1988. Prior to coming to the University he served in various leadership positions in service to a wide A-6 array of educational and development initiatives for Native American tribal organizations supporting indigenous communities. Dr. Reyes has taught both undergraduate and graduate courses in Education, Sociology, Religious Studies, Philosophy, Leadership Studies and Business. He received a B.A. in psychology from Eastern Washington University, an M.P.A. from City University of New York Baruch School of Business, and a Ph.D. in leadership studies from the University.
Michael L. Roth, Athletic Director. Mr. Roth joined the University in 1986 and was named Athletic Director in 1997. Mr. Roth previously served as the Assistant Athletic Director. Mr. Roth was named the 2008-2009 Under Armour AD of the Year for the Division I West Region. Mr. Roth earned a bachelor’s degree from Willamette University and a master’s degree from the University.
John D. Sklut, J.D., Chief of Staff. Mr. Sklut was appointed Chief of Staff in September 2015. Mr. Sklut previously served as the University’s interim Vice President of Administration and Planning as well as Assistant General Counsel. He joined the University as Assistant Dean of the School of Law in 2008. He has more than 20 years of legal experience and earned a bachelor’s degree from the University of California, San Diego and a juris doctorate from Loyola Law School, Los Angeles.
Joseph P. Smith, Associate Vice President for Finance. Mr. Smith joined the University in 2010 after spending nine years as a financial statement auditor with two large public accounting firms. Mr. Smith earned a Bachelor of Business Administration - Accounting from the University. Mr. Smith is a Certified Public Accountant (CPA) and Chartered Global Management Accountant (CGMA).
Borre B. Ulrichsen, Chief Information Officer. Mr. Ulrichsen joined the University in June 2016 as Chief Information Officer. Prior to joining the University, Mr. Ulrichsen served as Chief Information Officer and Associate Vice President at California State University, East Bay. Mr. Ulrichsen has over 25 years of leadership experience in higher education and the technology industry. Mr. Ulrichsen earned an MBA in finance from the University of California, Berkeley and Master of Science in naval architecture from Norwegian University of Science and Technology.
Kirk J. Wood-Gaines, Assistant Vice President for Human Resources. Mr. Wood-Gaines joined the University in 2013 after serving as the Vice President of Human Resources and Communications at a worldwide manufacturer of pharmaceuticals for 13 years. Mr. Wood-Gaines has over 30 years of experience as a leader in the human resources field. Mr. Wood-Gaines earned a B.A. in business with a minor in economics from Washington State University. Mr. Wood-Gaines is a member of the Society for Human Resource Management and is a lifetime accredited Senior Professional in Human Resources.
Faculty and Staff
The following table reflects the number of full-time and part-time faculty (excluding adjunct faculty) for the past five fall semesters, together with the number of tenured full-time faculty members. There are no unions representing members of the faculty.
FACULTY SUMMARY
Tenured Other Fall Semester Full-Time Full-Time Part-Time Total 2015 227 195 13 435 2014 227 199 9 436 2013 219 202 13 434 2012 210 198 21 429 2011 201 202 19 422
Source: The University. Fall 2016 numbers not yet available.
Members of the Society of Jesus constitute approximately two percent of the full-time faculty. They receive compensation from the University comparable to that received by other members of the faculty. The majority of the faculty who are members of the Society of Jesus live in facilities located on the University’s campus.
Eighty-three percent of the full-time faculty has obtained a Ph.D. or other terminal degree appropriate to their disciplines.
A-7
In addition to its faculty, the University employs approximately 815 administrative, professional, and staff members. There are no unions representing administrative, professional, or staff members.
Academic Programs
The University reflects the centuries-old tradition of Catholic and Jesuit education, whose goals include a dedicated commitment to academic and professional excellence, Christian and humanistic traditions, and community service. Among the University’s numerous achievements with respect to service to others, for the fourth year in a row it was ranked number one nationwide among small colleges and universities whose graduates serve in the Peace Corps.
The University’s educational programs are organized into six major academic divisions and the School of Law. Undergraduate and graduate instruction is provided by the College of Arts and Sciences and the Schools of Business Administration, Education, Engineering and Applied Science, and Nursing and Human Physiology. The School of Professional Studies houses Master’s and Ph.D. programs in leadership studies, with the majority of classes offered online. The School of Law offers a Juris Doctor degree. In addition, the University offers several study abroad programs, including a campus in Florence, Italy. In total, the University offers seven bachelor’s degrees in 75 majors and programs, master’s degrees in 26 programs and doctorate degrees in nursing practice and nurse anesthesia practice, in addition to primary and secondary education credential programs. Some undergraduate students are enrolled in multiple majors, minors, and/or concentrations.
Undergraduate and Graduate Education
College of Arts and Sciences. The College of Arts and Sciences is the central component of the University’s undergraduate program. Every student, whatever his or her major, takes a variety of courses in the College of Arts and Sciences, including courses in literature, mathematics, science, social science, global studies, history, philosophy and religious studies. The purpose of this core curriculum is to develop a well-rounded and well-educated adult with a firm grounding in the humanistic traditions. Through the University’s core curriculum, the College of Arts and Sciences provides all its students with the foundation upon which they build further studies in their chosen academic discipline or field of study. The University’s core curriculum was developed to challenge each student to read, write, analyze, reflect, discuss and persuade; to evaluate learning with discernment and compassionate understanding; to explore the past for the light it casts on the present and the future; to create works of the imagination; to practice ethical decision making; and to develop a foundation for a career. The University has adopted a revised core curriculum beginning with academic year 2016-17. Among other revisions introduced with the newly adopted core structure, elements of the core curriculum are integrated throughout all four years of undergraduate education, regardless of major, including a core integration seminar during the senior year. The College of Arts and Sciences confers the degrees of Bachelor of Arts (B.A.) (Honors and General), and Bachelor of Science (B.S.) (Honors and General). The College of Arts and Sciences includes 21 departments and had 235 full-time and seven part-time faculty members in the fall of the 2015-16 academic year. In the fall of the 2015-16 academic year, 2,486 undergraduates and 26 graduate students were enrolled in the majors and fields of concentration offered by the College of Arts and Sciences.
School of Business Administration. The School of Business Administration was established in 1921 and is accredited by the Association to Advance Collegiate Schools of Business. As expressed in its Mission Statement, the School of Business Administration strives to develop professionally competent and intellectually curious graduates who exemplify the humanistic, ethical and moral values of a Jesuit institution. A personal learning environment, quality students and a faculty dedicated to teaching, advising, scholarship and service mark the University’s excellence. As part of a dynamic and global business environment, the University promotes relationships with the regional, national and international communities. In 2015 USA Today ranked the School of Business Administration among the Top 10 Schools to Study Business. The School of Business Administration confers the degree of Bachelor of Business Administration (“BBA”) (Honors and General), Master of Business Administration (“MBA”), Master of Accountancy (“MACC”), Master of Science in Taxation (“MTAX”), and MBA in American Indian Entrepreneurship. In the fall of the 2015-16 academic year, there were 1,335 undergraduate and 172 graduate students under the instruction and guidance of 45 full-time faculty members affiliated with the School of Business Administration.
School of Education. The mission of the School of Education is to prepare socially responsive and discerning practitioners to serve their communities and profession. This mission is accomplished by directing available human and physical resources toward the establishment of knowledge bases and professional competencies needed to be an effective leader within a variety of organizational settings. The School of Education offers three undergraduate degrees: Bachelors of Education (“B.Ed.”) in Special Education, Sport Management, and Kinesiology and Physical Education. The School of Education also offers 11 separate Master’s degrees, in the areas of education, special education, initial teaching, various counseling programs, leadership and administration, sport and athletic administration and teaching English as a second language. Additionally, there is a comprehensive Teacher Certification Program, which enables A-8 students to obtain initial as well as continuing certification, at the elementary or secondary level. All degree and certification programs in the School of Education are accredited by the National Council for Accreditation of Teacher Education. The School of Education is a member of the American Association of Colleges of Teacher Education and is recognized by the Washington State Office of the Superintendent of Public Instruction as having approved programs for the preparation of teachers, counselors, special education teachers, principals and superintendents. In the fall of the 2015-16 academic year, there were 181 undergraduate students and 380 on-campus and off-campus graduate students receiving instruction from 25 full-time and one part-time faculty member. Faculty in the School of Education also work closely with accrediting bodies, professional standards entities, and other organizations within the community to meet the educational training needs of current teachers and administrators in K-12 educational settings. Certificate programs are offered in Principal, Program Administrator, Teacher and School Counselor. Conferences, institutes, and seminars are developed to meet the needs of these professionals.
School of Engineering and Applied Science. One of the key goals of the undergraduate programs in the School of Engineering and Applied Science is to prepare the students with a baccalaureate degree to be professional engineers. In addition, the programs provide a base both for graduate study and for lifelong learning in support of evolving career objectives, which include being informed, effective and responsible participants in the engineering profession and society. The School of Engineering and Applied Science offers four-year Bachelor of Science degrees in Civil Engineering (“BSCE”), Electrical Engineering (“BSEE”) and Mechanical Engineering (“BSME”). All three Bachelor of Science degree programs are fully accredited by the Engineering Accreditation Commission of the Accreditation Board for Engineering and Technology. The Civil Engineering program is offered with two options. One option is a traditional Civil Engineering program and the other option is an Environmental Engineering program. The Electrical Engineering program is also offered with two options. One option is a traditional Electrical Engineering program and the other is a Computer Engineering program. The School also offers a Bachelor of Science degree in Computer Science. The Center for Engineering Design is intended to enhance the design content of the engineering programs at the University by promoting interaction between the industrial and academic communities. The Center’s mission is to organize, support and provide guidance to student teams that undertake design projects defined by industry sponsors. In addition to its undergraduate programs of study, in fall 2015 approximately 49 graduate students were enrolled in the Transmission and Distribution program through which the University offers a Certificate in Transmission and Distribution, and a Master of Engineering degree in Transmission and Distribution. The School of Engineering and Applied Science is currently ranked the twenty-eighth best undergraduate engineering program in the nation (among engineering schools without a Ph.D. degree program) by U.S. News and World Report. In the fall of the 2015-16 academic year, 33 full-time faculty provided instruction to 952 undergraduate students in the School of Engineering and Applied Science.
School of Professional Studies. The School of Professional Studies strives to create, educate, and support leaders and to be of service in meeting the learning needs of a complex society. Ethics, excellence, spirit, and community are guiding values for all aspects of the School. Faculty scholarship and research contribute positively to the professions, the global community, and the classroom. Through a spirit of inquiry and lifelong learning, students expand their capacity to transform thinking, and engage in ethical problem solving and decision-making. The teaching strategies meet the needs of diverse student groups by utilizing dynamic program delivery formats, including technology and flexible scheduling. Traditional age undergraduate students, as well as adults returning to complete their degree, enrich the learning environment. The School of Professional Studies confers Master’s degrees in Organizational Leadership as well as Communication and Leadership Studies, and the University’s only Ph.D. degree in Leadership Studies. In the fall of the 2015-16 academic year, 694 students took leadership classes from 16 full-time faculty through a variety of course delivery platforms.
School of Nursing and Human Physiology. The School of Nursing and Human Physiology was established in 2013, in response to growing demand for programmatic offerings in health-related professions. Prior to 2013, these two units and their programs resided in the School of Professional Studies. Undergraduate degrees in Nursing and in Human Physiology as well as graduate degrees in Nursing, including a new Doctor of Nurse Anesthesia Practice degree, are offered. In the fall of the 2015-16 academic year, there were 23 full-time and one part-time faculty who work closely with 1,282 undergraduate, graduate, and doctoral students.
The Gonzaga School of Law. The School of Law was established in 1912 by the Board of Trustees with the active support of many prominent members of the bench and bar in Washington State. It is one of only three law schools in Washington State. It is fully accredited by the American Bar Association and is also a member of the Association of American Law Schools. The School of Law has a long and distinguished tradition of humanistic Jesuit education. The School of Law seeks to challenge its students to incorporate the knowledge of the past with the innovations of the present in order to better serve society. The Law Library collection totals more than 250,000 volumes of legal and law-related materials of hard copy or microform equivalents. The School of Law confers the degree of Juris Doctor (“J.D.”). In cooperation with the School of Business Administration, a combined program is A-9 offered for the MBA/J.D. and MACC/J.D. and the School of Law currently offers a full range of courses dealing with federal, state and international law. In addition to the traditional methods of legal education, the School of Law is committed to the value of clinical experiences as an integral part of modern legal education. The student body at the School of Law publishes the Gonzaga Law Review four times per year, and conducts an extensive moot court program. In the fall of the 2015-16 academic year, there were 339 students enrolled in, and 29 full-time faculty members affiliated with, the School of Law.
Summer Session
To provide students with further opportunities to expand or accelerate their studies, the University offers a summer session, which is an extension of its normal academic programs. During the summer of 2016, 1,062 undergraduate and 1,805 graduate students furthered their academic studies at the University. The enrollment figures contained in this Appendix do not include the summer sessions.
Accreditation
The University is accredited by the Northwest Commission on Colleges and Universities (“NWCCU”), an accrediting body recognized by the Council for Higher Education Accreditation (the “Council”) and the Secretary of the U.S. Department of Education. In addition, the University’s schools and some academic programs are also accredited by the following professional accrediting bodies:
• The School of Business Administration is accredited by AACSB International - The Association to Advance Collegiate Schools of Business, a specialized accrediting board recognized by the Council and the Secretary of the U.S. Department of Education.
• The School of Law is accredited by Council of the Section of Legal Education and Admissions to the Bar of the American Bar Association (“ABA Council”). The U.S. Department of Education has recognized the ABA Council as the national agency for the accreditation of programs leading to the first professional degree in law.
• Programs in English as a Second Language are accredited by the Commission on Accreditation of Teachers and Speakers of Other Languages (“TESOL”), a specialized accrediting board recognized by the Council and the Secretary of the U.S. Department of Education.
• Programs in the Department of Nursing are accredited by the Commission on Collegiate Nursing Education (“CCNE”), a specialized accrediting board recognized by the Council and the Secretary of the U.S. Department of Education.
• Programs in Civil, Electrical, Computer, and Mechanical Engineering are accredited by the Engineering Accreditation Commission of the Accreditation Board for Engineering and Technology (“EAC/ABET”), a specialized accrediting board recognized by the Council and the Secretary of the U.S. Department of Education.
• Programs for the certification of elementary, secondary, and Special Education teachers at the bachelor’s level; and Special Education, Initial Teaching (elementary and secondary levels), Principal and Superintendents (Leadership Formation), at the graduate level; and for the certification of post- licensure teachers and administrators (i.e., “professional certification”), are accredited both by the National Council for Accreditation of Teacher Education (“NCATE”), a specialized accrediting board recognized by the Council and the Secretary of the U.S. Department of Education, and by the Washington State Board of Education through its Office of the Superintendent of Public Instruction (“OSPI”).
• The School Counseling and Counseling Psychology master’s programs are accredited by the Council for Accreditation of Counseling and Related Education Program (“CACREP”), a specialized accrediting board recognized by the Council and the Secretary of the U.S. Department of Education.
• The Special Education, Sports Management, and Physical Education bachelor’s programs, and the Special Education, Sport & Athletic Administration, Leadership & Administration, Master of Teaching At-Risk Youth, Counseling Psychology, Reading & Literacy, and Anesthesiology Education master’s programs, are accredited both by NCATE, a specialized accrediting board recognized by the A-10
Council and the Secretary of the U.S. Department of Education, and by the Washington State Board of Education through OSPI.
• The Doctor of Nurse Anesthesia Practice program is accredited by the Council of Accreditation of Nurse Anesthesia Education Programs (“COA”). The COA is a specialized accrediting board recognized by the Council and the Secretary of the U.S. Department of Education.
The Campus
The University’s campus has grown from one building, which housed both students and Jesuit faculty in its founding years, to 105 buildings spread over 152 landscaped acres. The University is located along the north bank of the Spokane River and includes its own small lake, providing an attractive campus setting for students, faculty and staff. Some highlights of the campus include the following:
Student Housing provides living options for more than 3,000 undergraduate students, including men’s, women’s and coeducational residence halls with capacities ranging from 15 to 422. Apartment-style living units are another housing option for students. The University owns several houses and apartment complexes in the campus neighborhood, which are rented to upper-division students. Residence halls are staffed by professional staff and trained students who provide services ranging from personal counseling to activities planning. Full-time first and second year students under age 21, unmarried and not living at home, must live in on-campus residence halls.
The John J. Hemmingson University Center, the University’s newest facility, was completed in 2015. The 167,000 square-foot facility houses a modern two-level board dining area with six restaurant style dining platforms, four retail eateries, conference, meeting, lounge and banquet facilities, and an array of student, staff and faculty functions including student government, mission and ministry, student clubs, the Center for Global Engagement, and the Center for Community Action and Service Learning. The Hemmingson Center adds significant ongoing physical capacity for academic and extra-curricular programming, studying and dining.
Martin Centre and the Rudolf Fitness Center, the University’s modern sports and recreational facilities, include an intercollegiate volleyball competition arena, dance studio, weight and exercise rooms, and a fieldhouse offering three full sized courts for intramural basketball and volleyball, four racquetball and handball courts, an elevated running track and an indoor swimming pool. The Princeton Review lists the University as No. 8 for “Everyone Plays Intramural Sports” in its most recent edition of Best 381 Colleges.
Foley Center, opened in the fall of 1992, provides sophisticated online computer access to libraries across the United States. In addition, students enjoy abundant individual study spaces, a computer lab, an audio/visual resource room, and one of the finest rare book collections in the country. The Foley Center has undergone a significant remodel over the past two years to incorporate central information technology services and expanded student support functions, including a writing lab.
St. Aloysius Church and the student chapel offer students a place for solitude and reflection as well as daily masses. The twin spires of St. Aloysius Church are a landmark of the Spokane area. The primary student chapel is located in College Hall, the University’s primary administration building. There are other smaller student chapels and reflections spaces located throughout campus, including an outdoor candlelight grotto located adjacent to St. Aloysius Church.
The McCarthey Athletic Center, a 6,000-seat arena, opened in the fall of 2004, and is home to the University’s men’s and women’s basketball teams and other University-sponsored events. The McCarthey Athletic Center, also known as “The Kennel,” has been sold out for every men’s basketball game since its opening, and the attendance per capacity for regular season games ranks third in the nation for women’s basketball. In January 2016, NCAA.com named “The Kennel” on its college basketball list of “5 venues every hoops fan must attend.”
In addition to the Hemmingson Center, other recent and pending projects include:
• The Woldson Performing Art Center, a 57,500 square foot facility that will serve as the cornerstone of a new arts district on the west end of campus. The facility is expected to be completed in winter 2018, with site preparation currently underway, and will feature a 750 seat performance theatre, a 150 seat recital/rehearsal hall for music and dance, a two-story lobby and box office, make-up rooms, an orchestra pit designed to rise and create a “thrust” stage area, and other supporting studios and
A-11
instructional space. The Woldson Performing Arts Center has an estimated cost of $45 million and is fully gift funded.
• The Volkar Center for Athletic Achievement, a 51,000 square foot addition to the athletics complex that will house student athlete academic support services, a weight room, nutrition center, basketball practice court, offices, a new Gonzaga Athletics Hall of Fame, and meeting areas. The Volkar Center for Athletic Achievement, scheduled for completion in fall 2017, with site preparation to begin in the coming months, has an estimated cost of $24 million and is fully gift funded via current gifts, pledges and expectancies.
• The Jesuit Residence, a 36,100 square foot home for Jesuits in residence, including reflective space to serve Jesuits seeking retreat, suite-style living quarters, offices and work space, and a new chapel. The Jesuit Residence, scheduled for completion in fall 2017, with site preparation currently underway, will functionally replace the existing Jesuit House, a dorm-style facility that no longer meets the contemporary needs of the Jesuit community. The Jesuit Residence has an estimated cost of $12.3 million, with gift funding from current gifts and pledges currently addressing approximately 50% of the project costs. Fundraising is ongoing.
• The Stevens Center, opened in January 2014, is a 72,000 square foot indoor tennis and golf facility. The Stevens Center includes six regulation tennis courts, putting green, chipping area, four “TrackMan” golf simulators, locker rooms, lounges, offices and seating. The Stevens Center was fully gift funded.
• The Boone Avenue Retail Center (BARC), a four-level mixed use parking/retail structure, with approximately 650 parking spaces and 36,000 square-foot of retail and office space, was completed in the summer of 2013. The BARC is home to the Zag Shop campus book/apparel store. The BARC was recently renovated to include a new central mail/package facility and will be renovated in the coming year to house selected administrative functions of the University.
Cultural Activities
The University offers a wide variety of cultural events on campus, including films, speakers, concerts, dramatic presentations and art displays. The University has a choral program that enjoys a national reputation. University students write, edit and publish a student newspaper and a literary magazine that includes works of poetry and fiction and operate KAGU, a radio station that offers an extensive broadcast schedule devoted to music, fine arts and public affairs programming. Gonzaga University English Professor Tod Marshall, an award-winning poet, has been appointed the fourth Washington State Poet Laureate by Governor Jay Inslee. He is the first Eastern Washington resident to hold the position.
Athletics
The University sponsors eight intercollegiate sports for men: baseball, basketball, crew, cross country, golf, soccer, tennis and track. Women’s teams compete in eight intercollegiate sports: basketball, crew, cross country, golf, soccer, tennis, volleyball and track. The University’s teams compete on the NCAA Division I level. Men’s teams compete in the West Coast Conference (“WCC”) in baseball, basketball, cross country, golf, soccer and tennis, and women’s teams compete in the WCC in basketball, cross country, soccer, golf, tennis, crew and volleyball. This past year, Gonzaga Athletics was recognized by the NCAA for having the nation’s highest percentage of teams – 80% - earn Academic Progress Rate (APR) Public Recognition Awards, which combined for the best APR average in the nation (tie, Dartmouth). The men’s basketball team made its eighteenth consecutive appearance in the NCAA tournament in March 2016 and its second straight “Sweet Sixteen” appearance. During the 2015-2016 season, the men’s basketball team was featured in an all-access five part HBO series titled “Gonzaga: The March to Madness.” In 2013, the men’s basketball team finished the regular season ranked No. 1 in The Associated Press Top 25 poll.
The University also sponsors a popular recreational sports program that offers a wide variety of structured and unstructured sports and activities. The intramural sports program offers participants the opportunity to play in structured sports such as flag football, softball, soccer, volleyball and basketball. Informal sports allow students to participate on their own in activities such as weight lifting, basketball and table tennis. The sports club program provides opportunities for participation on a more competitive level. These clubs include ice hockey, men’s and women’s rugby, alpine skiing and lacrosse.
A-12
FINANCIAL CONDITION OF THE UNIVERSITY
Presentation of Financial Statements
The most recent audited consolidated financial statements of the University are presented in Appendix B entitled “Audited Consolidated Financial Statements of the University.” The statements provide information as of and for the fiscal years ended May 31, 2016 and 2015. The University maintains its accounts in accordance with accounting principles generally accepted in the United States of America applicable to colleges and universities.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
A-13
The University provides certain summary financial information below, including a Summary Statement of Unrestricted Activities as of May 31, 2016, 2015, 2014, 2013, and 2012.
The Corporation of Gonzaga University Summary Statement of Unrestricted Activities for the Years Ended May 31
2016 2015* 2014* 2013* 2012* Changes in unrestricted net assets: Revenues and other additions: Student tuition and fees, net of institutional financial aid $151,410,590 $142,769,604 $138,903,331 $135,707,142 $134,351,349 Contributions 4,047,051 2,618,438 3,717,527 3,735,574 3,411,431 Grants and contracts 2,059,267 2,234,349 2,029,815 1,880,835 2,465,596 Return on investments designated for operations 659,646 1,218,302 1,085,167 58,099 327,351 Return on investments, net of amounts designated for operations (894,230) 318,428 1,834,581 2,414,494 (1,476,239) Auxiliary enterprises 30,260,775 26,810,141 26,524,221 25,574,998 27,420,107 Other sources 11,585,292 14,656,880 10,144,195 9,626,874 9,490,063 Net assets released from restrictions 40,146,516 11,159,639 16,871,066 13,582,513 9,301,955 Total revenues and $239,274,907 $201,785,781 $201,109,903 $192,580,529 $185,291,613 additions
Expenses and transfers: Instruction $81,539,829 $79,503,792 $77,235,770 $75,184,860 $73,339,884 Libraries 5,443,457 5,710,506 5,901,513 5,922,918 5,847,701 Student services 19,728,781 17,290,380 13,406,418 11,446,634 10,102,149 Organized activities 22,845,025 21,541,945 19,593,874 18,434,071 18,583,972 General administration and institutional 39,560,291 36,431,680 34,041,162 33,441,568 31,957,956 Operations and maintenance of plant 11,742,600 10,675,896 11,022,711 10,446,744 10,305,493 Auxiliary enterprises 28,429,124 23,729,124 22,950,832 21,714,436 25,731,251 Loss (Gain) on disposal of equipment 15,432 226,439 (31,099) (52,033) 12,736 Change in value of interest rate swaps (244,571) 579,878 129,611 (1,076,287) 4,502,777 Transfers out (in) (6,946,676) 4,906,282 424,399 49,122 925,300 Total expenses and transfers $202,113,292 $200,595,922 $184,675,191 $175,512,033 $181,309,219 Increase in unrestricted net assets 37,161,615 1,189,859 16,434,712 17,068,496 3,982,394 Unrestricted net assets, beginning of year 167,172,129 165,982,270 149,547,558 132,479,062 128,496,668 Unrestricted net assets, end of $204,333,744 $167,172,129 $165,982,270 $149,547,558 $132,479,062 year ______* Reclassifications: Certain reclassifications were made to prior periods to conform with the May 31, 2016 financial statement presentation, with such reclassification having no impact on total net assets in any period presented. The information listed herein is derived from those years’ audited financial statements.
Note: The amounts reported above represent a summary of the University’s Unrestricted Activities. For complete details, please see the University’s audited Financial Statements set forth in Appendix B. Source: Audited consolidated financial statements of the University.
A-14
ANNUAL DEBT SERVICE REQUIREMENTS
The following table sets forth, for each fiscal year ending May 31, the amount required for the payment of the University’s Outstanding Indebtedness, principal of the 2013A Bonds, 2013B Bonds, 2016A Bonds, 2016B Bonds and other notes at their stated maturity and the payment of interest on such bonds, other notes, and the Swaps.
Fiscal 2013A Bonds, Net Interest 2016A Bonds and 2016B Bonds(3) Total Debt Year 2013B Bonds, Payments for the Service Ending and other Swaps(2) Principal Interest Total Requirements May 31 notes(1) 2017 $3,094,182 $ 1,310,667 $3,500,000 $ $ $ 2018 3,094,182 1,181,290 3,175,000 2019 3,094,182 1,061,704 3,275,000 2020 2,932,500 934,753 3,950,000 2021 2,932,500 785,351 4,125,000 2022 2,932,500 629,371 4,300,000 2023 2,932,500 489,998 775,000 2024 2,932,500 460,900 800,000 2025 2,932,500 430,712 850,000 2026 2,932,500 398,813 875,000 2027 2,932,500 365,825 925,000 2028 2,932,500 331,126 950,000 2029 2,932,500 295,337 1,000,000 2030 2,932,500 257,992 1,000,000 2031 2,932,500 220,336 1,050,000 2032 2,932,500 180,812 1,100,000 2033 2,932,500 139,421 1,150,000 2034 2,932,500 86,360 2,775,000 2035 2,932,500 - - 2036 2,932,500 - - 2037 2,932,500 - - 2038 2,932,500 - - 2039 12,642,500 - - 2040 12,639,900 - - 2041 12,172,500 - - 2042 12,174,400 - - 2043 12,177,425 - - 2044 - - 30,860,000 2045 - - 32,190,000 2046 - - 33,575,000 $126,806,772 $ 9,560,769 $ 132,200,000 $ $ $
(1) Washington Higher Education Facilities Authority Revenue Bonds (Gonzaga University Project), Series 2013A (the “2013A Bonds”), Washington Higher Education Facilities Authority Taxable Revenue Bonds (Gonzaga University Project), Series 2013B (the “2013B Bonds”), and other notes. (2) Estimated net interest payments on the Swaps. Interest is calculated using one month LIBOR of 0.50% for all periods presented. Net interest payments associated with the Swaps are not included for purposes of determining the Debt Service Coverage Ratio, as defined in the Indenture. (3) Refer to the following page for details of the 2016A Bonds and the 2016B Bonds. Preliminary, subject to change.
Source: The University
A-15
Fiscal 2016A Bonds* 2016B Bonds* 2016A Bonds Year and 2016B Bonds Ending Total Debt Service May 31 Principal Interest Principal Interest Requirements 2017 $ - $ $ 3,500,000 $ $ 2018 - 3,175,000 2019 - 3,275,000 2020 - 3,950,000 2021 - 4,125,000 2022 - 4,300,000 2023 - 775,000 2024 - 800,000 2025 - 850,000 2026 - 875,000 2027 - 925,000 2028 - 950,000 2029 - 1,000,000 2030 - 1,000,000 2031 - 1,050,000 2032 - 1,100,000 2033 - 1,150,000 2034 - 2,775,000 2035 - - 2036 - - 2037 - - 2038 - - 2039 - - 2040 - - 2041 - - 2042 - - 2043 - - 2044 30,860,000 - 2045 32,190,000 - 2046 33,575,000 - $ 96,625,000 $ $ 35,575,000 $ $
* Preliminary, subject to change. Source: The University
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
A-16
Interest Rate Swap Agreements
In connection with previously refunded Washington Higher Education Facilities Authority (“Authority”) bonds, the University entered into the following interest rate swap agreements with Bank of America N.A., described herein as the 2007C Swap and 2007B Swap, and together, the “Swaps.”
2007C Swap 2007B Swap
University Pays 4.1680% 4.1195%
University Receives 70% of one month 67% of one month LIBOR LIBOR if LIBOR is 3.5% or greater or 77% of one month LIBOR if LIBOR is less than 3.5%
Effective Date October 1, 2012 October 1, 2014
Expiration April 1, 2022 April 1, 2034
Notional Amounts Outstanding on: April 1, 2016 $ 4,825,000 $ 30,750,000 April 1, 2017 3,925,000 28,150,000 April 1, 2018 3,450,000 25,450,000 April 1, 2019 3,000,000 22,625,000 April 1, 2020 2,050,000 19,625,000 April 1, 2021 1,050,000 16,500,000 April 1, 2022 -0- 13,250,000 April 1, 2023 12,475,000 April 1, 2024 11,675,000 April 1, 2025 10,825,000 April 1, 2026 9,950,000 April 1, 2027 9,025,000 April 1, 2028 8,075,000 April 1, 2029 7,075,000 April 1, 2030 6,075,000 April 1, 2031 5,025,000 April 1, 2032 3,925,000 April 1, 2033 2,775,000 April 1, 2034 -0-
In prior years, the University utilized variable-rate debt to refinance certain outstanding debt and finance the construction and acquisition of property, plant, and equipment. The University entered into the Swaps in order to obtain a synthetic fixed rate and to hedge the risk of changes in interest payments on the variable-rate bonds caused by changes in the market rates. All of the University’s variable-rate Authority bonds that were paired with the Swaps have been previously refunded with proceeds of fixed rate Authority bonds. As such, the Swaps are no longer directly paired with any outstanding debt. However, all of the 2007C Swap and a portion of the 2007B Swap together currently provide an indirect synthetic fixed rate on the privately placed 2012A Bonds and 2012B Bonds. As of May 31, 2016, the total principal balance outstanding on the combined 2012A Bonds and 2012B Bonds was $10,055,000. The University intends to refund the 2012A Bonds and 2012B Bonds in conjunction with the issuance of the 2016A Bonds. The University intends to issue the variable rate 2016B Bonds through a private placement with one or more financial institutions, with principal payments closely matching the amortizing notional amounts of the Swaps.
The Swaps can each be terminated at market rates at any time during the term of the swap. As of August 31, 2016, the 2007C Swap and 2007B Swap have estimated derivative liabilities of $572,000 and $7,176,000, respectively, with such amounts representative of the termination price of each swap. The University does not enter into derivative instruments for any purpose other than cash flow hedging purposes and does not speculate for investment purposes
A-17
using derivative instruments. If the University’s bond rating falls below BBB+ by S&P Global Ratings or Baa1 by Moody’s Investors Service, the swap counterparty has the ability to require the University to post collateral.
Comments on the University’s Financial Condition
Student Tuition and Fee Revenues
The main component of the University’s revenues is student tuition and fees. Tuition revenues are a function of tuition rates and enrollments, net of institutional financial aid. The University has raised its tuition rates in each of the past five years and believes that its tuition rates remain attractive compared to those of other private institutions with which it competes for students.
The following table sets forth the tuition charged to full-time students, as well as the room charges for the majority of University accommodations combined with the full board charges for each of the last five academic years, inclusive of the current academic year.
TUITION RATES, ROOM AND BOARD* Undergraduate Full-time School of Law Full-time Academic Year Tuition Tuition Room and Board 2016-17 $38,980 $37,080 $10,930 2015-16 37,480 36,360 10,835 2014-15 36,040 36,360 9,580 2013-14 34,570 36,360 9,120 2012-13 33,160 35,310 8,730 ______* Excludes non-law graduate student tuition rates (see “Undergraduate and Graduate Education” on page [A-9] for a description of those programs). Students in such graduate programs pay tuition on a per-credit-hour basis, which for the 2016-17 academic year ranged from $920-$975 per-credit-hour. Undergraduate full-time tuition above excludes mandatory fees of ranging from $482 to $750 per year. Room and Board amounts are based on the typical lower division student housing configuration and meal plan selection. Source: The University.
Financial Aid Programs
Approximately 98% of the undergraduate student body receives some form of merit or need-based financial assistance from the University. The following table shows the University’s total student assistance programs for all students, graduate and undergraduate, for the last five academic years.
FINANCIAL AID PROGRAMS
Grants Loans Federal and Washington Private University Federal and Total Grants Academic Year State Programs Assistance Expenditures Private and Loans 2015-16 $ 3,055,838 $ 5,899,103 $ 95,188,676 $ 64,904,882 $ 169,048,499 2014-15 3,050,877 5,857,368 86,778,352 64,106,410 159,793,007 2013-14 3,221,202 6,212,912 82,715,658 68,270,264 160,420,036 2012-13 3,270,054 5,998,348 79,685,006 73,272,314 162,226,722 2011-12 2,541,147 4,437,584 75,977,295 77,034,927 159,993,953 Source: The University.
A significant number of the University’s students depend on student financial aid from sources other than the University to pay tuition fees and expenses. The majority of such aid comes from State and federal governmental sources. The continued availability of those funds is contingent upon continued legislative support.
A-18
Student Enrollment
The undergraduate enrollment for academic year 2016-17 grew 5.2% from 2012-13, stemming from overall new student enrollment growth and improved retention. The state of Washington is the University’s primary feeder state, accounting for 44% of the total freshmen enrollment in academic year 2016-17. The University maintains ongoing efforts to strengthen its position in out-of-state markets through focused marketing efforts and financial aid strategies to maintain or increase its undergraduate revenue. The fall 2015 entering freshmen class of 1,338 was the largest in University history. Matriculation for fall 2016 is 1,271 students representing the second largest class in University history and a class size intentionally smaller than the prior year due to academic and space capacity considerations.
Graduate enrollment has experienced some decline over the past five years, with fall 2016 enrollments approximately 13% below a high point in fall 2012. Enrollment has softened in areas such as organizational leadership and communication leadership, while enrollments are extremely strong in nursing, taxation, and sport administration. Nevertheless, due to the quality, mix and reputation of the University’s graduate programs, demand continues to be good overall for programs offered both on campus and off campus including online distance education programs, particularly in light of national trends for graduate enrollment. Overall, the University anticipates a slight decline in graduate enrollment in the coming year.
The School of Law enrollment is following the national declining trend of applications and enrollment. Historically, there is generally a 10-year cycle of peaks and valleys associated with law school enrollment. The School of Law has taken active steps to manage through this downward cycle, including a voluntary early termination program for tenured faculty.
The following table sets forth the University’s enrollment headcount for the fall semester for each of the past five academic years, inclusive of the current academic year, and the number of degrees conferred in each such year completed.
ENROLLMENT AND DEGREES
Fall Enrollments Degrees Awarded Academic Under- Year graduate Graduate Law Total Bachelor Graduate Law Total 2016-17 5,160 2,100 312 7,572 * * * * 2015-16 5,041 2,111 339 7,491 1,112 787 112 2,011 2014-15 4,837 2,178 339 7,354 1,172 801 121 2,094 2013-14 4,896 2,322 387 7,605 1,125 835 157 2,117 2012-13 4,906 2,417 460 7,783 1,255 828 161 2,244 *Data not yet available. Source: The University.
The following table sets forth applications, admissions and new enrollments for the undergraduate, law and other graduate programs for the last five academic years, including estimated figures for the current academic year.
APPLICATION POOL
Undergraduate (Freshmen only) School of Law Other Graduate* Fall Offered New Offered New Offered New Semester Applications Admission Enrollments Applications Admission Enrollments Applications Admission Enrollments 2016 7,324 4,928 1,271 796 452 108 1042 583 450 2015 6,728 4,951 1,338 740 521 130 960 706 492 2014 7,162 4,835 1,048 479 447 128 795 513 361 2013 7,030 4,790 1,238 551 511 108 950 602 458 2012 6,985 4,649 1,096 1,157 723 132 1,291 987 649 ______*Head count. Does not include transfers. Source: The University.
A-19
RETENTION RATES AND GRADUATION RATES OF INCOMING FRESHMEN
Year of Entry 2009 2010 2011 2012 2013 2014 Entering Freshmen 1,238 1,119 1,131 1,096 1,238 1,048 Returned 2nd Year 92.1% 90.8% 93.5% 94.3% 92.4% 94.6% 4-Year Graduation 72.9% 74.3% 77.5% 5-Year Graduation 81.7% 82.5% 6-Year Graduation 82.7%
Source: The University
Income on Endowment Funds
The University has adopted an investment and spending policy for endowment assets that attempts to provide a predictable stream of funding to programs supported by its endowment while seeking to maintain the purchasing power of the endowment assets. Under this policy, as approved by the Board of Trustees, the endowment assets are invested in a manner that is intended to produce an acceptable level of return while assuming a moderate level of investment risk on a total portfolio basis. The University’s goal for its endowment funds, over time, is to provide an average annualized return of the annual endowment spending amount plus inflation, as measured by the Higher Education Price Index (“HEPI”) over a market cycle of three to five years. To satisfy its long-term rate of return, the University relies on a total return strategy in which investment returns are achieved through both capital appreciation (realized and unrealized) and current yield (interest and dividends), and maintains a diversified asset allocation that places a greater emphasis on equity-based and alternative investments to achieve its long-term return objectives within prudent risk constraints.
Contributions and Other Support
The University is currently in the public phase of a multi-year fundraising campaign called “Gonzaga Will,” largely focused on growing student financial aid endowments, academic program endowments, and signature capital projects, including The John J. Hemmingson University Center, Myrtle Woldson Performing Arts Center, Volkar Center for Athletic Achievement, and Jesuit Residence. Begun in July 2011 and launched publically in October 2015, the current campaign has a published goal of $250 million. As of September 30, 2016, the University has raised $226 million in the form of cash contributions, pledges, bequests, and other support, the majority of which support capital projects. The University’s last public fundraising campaign, which ended in October 2005, raised a total of $149 million, exceeding a goal of $119 million. The University continues to be successful in its fund-raising efforts for a variety of purposes and projects.
Auxiliary Enterprise Revenues
Auxiliary enterprise revenues are principally from room and board fees and campus bookstore sales. The University attempts to operate its auxiliary enterprises on a “break-even” basis, after including charges for principal and interest on debt and setting aside reserves for renewal and replacement of these facilities. In June 2012, the University transitioned the operations of the campus bookstore to a third party.
Other Income
Sources of other income to the University include interest income, rental income and miscellaneous sales and services income.
Expenditures
The most significant categories of expenditures are instruction, libraries, student services, general administration and institutional, operation and maintenance of plant, and auxiliary enterprises. Instruction and libraries expenses include principally faculty and academic staff salaries and other expenses related to the operations of the major academic divisions. Student services expenses include registration, admissions, counseling, career advising, and health center operations. The general administration and institutional category includes expenses related to such operations as data processing, University advancement activities, alumni activities, legal, accounting and audit functions, employee benefits and other similar expenses that benefit the University as a whole. The operation and maintenance of plant category includes costs for utilities, staff, repairs and maintenance, grounds, and housekeeping. A-20
Auxiliary enterprises expenses include the costs of providing room and board to students and of operating the campus bookstore (through May 2012).
Liabilities
The University’s liabilities at May 31, 2016, are shown on the Audited Consolidated Statement of Financial Position included in the University’s financial statements, set forth in Appendix B. Such liabilities amounted to $241,287,658, including long-term indebtedness of $170,249,828, excluding government student loans and obligations under the Swaps. The remainder of the liabilities other than long-term indebtedness consisted of accounts payable, accruals, reserves, student advances and deposits and assets held for others.
The University provides retirement benefits to all employees working a minimum of 1,000 hours per year under a 403(b) defined contribution plan. Beginning the first day of the month following one year of service, eligible employees are required to contribute 5% of their salary and the University contributes 8.5%. All contributions vest immediately. The University expense for the 403(b) retirement plan was $6,566,050 for the year ended May 31, 2016. There are no defined benefit retirement plans or other defined benefit post-employment benefit plans, and as such there are no unfunded benefit plan liabilities.
The University is subject to legal proceedings and claims that arise in the ordinary course of its business. In the opinion of management, the results of these matters will not have a significant impact on the consolidated financial statements.
Cash and Investments
The following table sets forth the University’s cash and investment balances for each of the past five fiscal years.
CASH AND INVESTMENTS As of May 31
2016 2015 2014 2013 2012 Cash and Cash $ 17,085,515 $ 37,537,813 $ 34,283,365 $ 74,794,802 $ 56,813,622 Equivalents Short-Term 57,833,387 39,581,247 23,534,629 -0- -0- Investments Long-Term 230,320,609 231,621,526 217,266,267 180,823,866 154,524,432 Investments* Deposits with Bond 12,810,952 13,363,244 55,476,052 13,210,134 13,390,817 Trustees Total $318,050,463 $322,103,830 $330,560,313 $268,828,802 $224,728,871
*Includes beneficial interests in trusts for all periods presented. Source: Audited consolidated financial statements of the University.
Cash and cash equivalents are comprised of highly liquid bank demand deposits and money market funds. Short-term Investments are comprised of operating funds, externally managed as a laddered portfolio, and mutual fund investments. Deposits with bond trustees are largely comprised of debt service reserve funds for the 2009A Bonds, 2009B Bonds, and 2010A Bonds. With the planned refunding of the 2009A Bonds, the 2009B Bonds, the 2010A Bonds, the 2012A Bonds and the 2012B Bonds, debt service reserve funds will be used, in conjunction with refunding proceeds from the 2016A Bonds and 2016B Bonds, to fund an escrow account to defease the 2009A Bonds, the 2009B Bonds and the 2010A Bonds. Amounts are invested in fixed income securities.
The Investment Committee of the Board of Trustees oversees the University’s Investments. The primary component within Investments is the pooled endowment fund, which represents approximately 85% of the Investments balance in each of the years presented above. The pooled endowment fund is largely invested in actively managed assets, and generates earnings used primarily for scholarship, endowed faculty positions and other restricted purposes. The target asset allocation for the pooled endowment fund, as set forth in the Investment Policy approved by the Board of Trustees, is as follows:
A-21
54% Equities (including domestic small, mid and large cap, international small, mid, and large cap, and emerging markets)
21% Fixed income (including domestic, international, and high yield)
15% Alternative investments (including venture capital, private equity, absolute return, and others funds)
10% Real Assets (including real estate funds)
The one-year total net return on the University’s pooled endowment fund for the periods indicated are as follows:
POOLED ENDOWMENT FUND TOTAL RETURN ONE YEAR RETURN AS OF JUNE 30
2016 2015 2014 2013 2012 Pooled Endowment Funds (2.2%) 4.0% 19.7% 13.7% (0.4%) Source: The University.
As of August 31, 2016, the University’s pooled investment fund was up approximately 3.8% since June 30, 2016. This data is based upon data supplied by investment managers, and does not include current valuations from some alternative asset categories that are not priced on a monthly basis. The University’s pooled endowment funds achieved annualized net returns ranking among the top 10 percent of higher education institutions nationwide for the past three and five-year periods ending June 30, 2015, among participants in the NACUBO Commonfund Study of Endowments® (NCSE). The University also achieved annualized net investment returns ranking among the top 22% of participating schools for the past 10 years and among the top 21% for the past year. The ten-year annualized return was 7.0% as of June 30, 2015, or 70 basis points higher than the NCSE average for all participants.
Property, Plant, and Equipment
The following table sets forth the Property, Plant, and Equipment of the University at the end of each of the last five fiscal years.
PROPERTY, PLANT, AND EQUIPMENT As of May 31
2016 2015 2014 2013 2012 Land ...... $ 8,071,843 $ 8,023,680 $ 7,490,521 $ 6,827,355 $ 6,827,355 Buildings and Improvements ...... 353,857,737 292,878,318 291,481,990 266,814,399 265,661,241 Construction in Progress ...... 6,674,713 66,101,075 19,123,634 18,939,867 2,008,906 Equipment and Furniture ...... 33,447,955 21,835,563 23,819,250 23,934,976 24,471,054 Library Books and Artwork ...... 9,185,082 8,786,088 8,589,499 8,148,110 7,792,856 Subtotal ...... 411,237,330 397,624,724 350,504,894 324,664,707 306,761,412 Accumulated Depreciation...... (114,279,849) (105,928,338) (100,613,443) (95,770,221) (88,647,650)
Property Plant and Equipment, Net $ 296,957,481 $ 291,696,386 $ 249,891,451 $ 228,894,486 $ 218,113,762
Source: Audited consolidated financial statements of the University.
The University currently maintains a full complement of insurance coverages as described herein, although these coverages may change from time to time. See “Appendix C – FORM OF INDENTURE OF TRUST.” These coverages currently include blanket property and extra expense coverages in the amount of $449 million, general and excess liability coverages totaling $22 million, educator’s legal liability in the amount of $26 million and certain professional liability coverage. In addition, the University secures automobile coverage, crime coverage, workers compensation coverage and assorted accident coverages.
Bondholders’ Risks
For a discussion of Bondholders’ Risks, see “CERTAIN BONDHOLDER RISKS” and “MATERIAL LITIGATION” in the Offering Memorandum. A-22
APPENDIX B
AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF THE UNIVERSITY
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
[THIS PAGE INTENTIONALLY LEFT BLANK] GONZAGA UNIVERSITY FINANCIAL REPORT 2015-16
B-1 B-2 Table of Contents
Letter from the Vice President for Finance ...... 2
Selected Data ...... 5
Report of Independent Auditors ...... 6
Consolidated Financial Statements
Consolidated Statements of Financial Position ...... 8
Consolidated Statements of Activities ...... 9
Consolidated Statements of Cash Flows ...... 11
Notes to Consolidated Financial Statements ...... 12
Supplementary Information