1. UNC General Administration Debt Capacity Study Michael Juby, Director First Tryon Advisors 1355 Greenwood Cliff, Suite 400 Charlotte, NC 28204 Phone: (704) 831-5202 Email: mjuby@firsttryon.com Fayetteville Fort Bragg

2. Debt Capacity Study – Legislative Background & Requirements Background on SL 2015-241 (H97) Amends Chapter 116D to require an annual report from the Board of Governors to advise the Governor and the General Assembly on “the estimated debt capacity of The University of North Carolina for the upcoming five fiscal years” Under the statute, the report’s guidelines must address: Target policies for the following ratios: Debt to Obligated Resources – Compares each campus’s debt (minus debt supported by State appropriations) to the funds legally available to pay the debt under Chapter 116D of the General Statutes Five-Year Payout Ratio – Measures the percentage of each campus’s debt that will be retired over the next five years Other debt recommendations the Board of Governors considers consistent with sound management of the System’s debt Went into effect on October 31, 2015 Contemplated Schedule of Deliverables under SL 2015-241 Campus Reports – Due November 1 of each year Under SL 2015-241, each campus must report to the Board of Governors before November 1 of each year its current and anticipated debt levels in a uniform format prescribed by the Board of Governors Among other information, each campus report must include the campus’s outstanding debt, any changes to the campus’s bond rating during the past year, recommendations for maintaining and improving the campus’s bond rating and the campus’s debt burden as compared to its peer institutions System Report – Due February 1 of the following year The Board of Governors must deliver a System-wide report before February 1 of each year to the OSBM, the Joint Legislative Commission on Government Operations, the State Treasurer and UNC General Administration addressing the target policies and recommendations outlined above SL 2015-241 requires the System to include in its annul report each campus report delivered on or before the prior November 1

3. Modified Timeline for 2015-16

4. Model Development General Administration has worked with its financial advisor and each campus to develop a debt capacity model that provides the information required by the General Assembly, as well as information that would be useful to each campus’s strategic planning and debt management initiatives To supplement the statute’s required ratios, General Administration has selected two additional ratios to include in the study: Debt Service to Operations Expendable Resources to Debt

5. Model Development RatioExplanationStrengths and Challenges Statutory Ratios Debt to Obligated ResourcesMeasures the University’s outstanding debt as compared to the funds legally available to service the University’s debt Tied to statutory structure underlying each UNC campus’s general revenue debt Not a ratio or financial concept that applies outside of North Carolina Five-Year PayoutMeasures the percentage of University debt to be retired within the subsequent five year period Encourages aggressive amortization and responsible debt structures Not a ratio that is widely used or tracked Selected Ratios Debt Service to Operations Measures debt service burden as a percentage of the University’s total operational expenses Key rating agency ratio, which permits meaningful comparisons outside the UNC System Because it measures operational expenses rather than revenues, the ratio does not account for new revenue streams for self- supporting debt Expendable Resources to Debt Measures the number of times the University’s liquid and expendable net assets covers the University’s aggregate debt Key rating agency ratio, which permits meaningful comparisons outside the UNC System Because it focuses on the University’s balance sheet, the ratio does not account for new revenue streams for self-supporting debt

6. Sample Model Output

7. Michael Juby, Director First Tryon Advisors 1355 Greenwood Cliff, Suite 400 Charlotte, NC 28204 Phone: (704) 831-5202 Email: mjuby@firsttryon.com Fayetteville Fort Bragg