General
1. Section 192(4)(d) of the Education Act 1989 requires tertiary education institutions (TEIs) to obtain the Secretary for Education's ("Secretary") consent to borrow.
2. Under section 192(5)(c) of the Education Act 1989,
the Secretary's consent to borrow is not required if the amount to be borrowed does not exceed an amount determined by the Minister or ascertained in accordance with a formula determined by the Minister.
3. This notice sets out a formula under which TEIs will be allowed to borrow without the Secretary's consent ("exempt borrowing") if they satisfy the criteria and standard conditions outlined below.
Tier one: Exempt criteria for low-value exempt borrowing
4. All TEIs can borrow up to 2% of the TEI group's consolidated total revenue without the Secretary's consent.
5. Borrowing under this tier is restricted to the following types of instruments:
- overdrafts;
- bank loans;
- committed cash advance facilities;
- finance leases;
- revolving credit arrangements used to provide liquidity for companies day-to-day operations, including credit and purchase cards;
- hire purchase arrangements;
- EECA energy efficiency loans.
Tier two: Exempt criteria for medium-value exempt borrowing
6. TEIs can borrow up to $50 million or 10% of the TEI group's consolidated total revenue, whichever is less, without the Secretary's consent provided all the following criteria have been met:
- The TEI has a low risk rating in the Tertiary Education Commission's (TEC) Financial Monitoring Framework (FMF).
- The TEI has produced on average a 3% net surplus of revenue over the last three years and is forecasting a 3% net surplus of revenue on average over the term of the borrowing.
- The TEI has not recorded an audited net operating loss in any of the last three years.
- The debt/equity ratio is less than 12.5% and is forecast to remain under 12.5% over the term of the borrowing.
- In the last three years, the TEI has had no statutory intervention.
- The TEI has not breached any borrowing approvals or covenants in the last three years.
Standard conditions: Tier one and tier two borrowing
7. TEIs may provide security over assets financed by exempt borrowing.
8. TEIs must not enter into any borrowing agreements with a duration longer than 10 years.
9. Borrowings must be a standard form of borrowing instrument, which is defined as one of the following types of borrowing:
- Overdrafts;
- committed cash advance facilities;
- standard business term loans;
- revolving credit facilities;
- finance leases;
- hire purchase agreements;
- credit or purchase cards;
- EECA loans;
- deferred settlement of debt under $1 million and with a single counterparty.
10. TEIs undertaking any other form of borrowing
("non-standard borrowing") must seek the Secretary's consent. Non-standard borrowing, includes, without limitation, the following:
- Borrowing using a non-standard borrowing instrument or facility, such as commercial property loans or commercial bills;
- borrowing for a term greater than 10 years;
- borrowing which involves the grant of any form of security (other than security over assets financed by exempt borrowing) or by way of a tradable debt security or which allows multiple or alternative parties to the borrowing agreement.
11. Any borrowing facility must be undertaken with a registered bank under the Reserve Bank of New Zealand Act 1989, except for finance leases, hire purchase agreements and EECA loans.
12. Finance leases or hire purchase agreements must be undertaken with a registered finance company or bank.
Standard conditions: Administrative arrangements and management of exempt borrowing
13. TEIs must report on the amount borrowed under the exempt borrowing formula in the regular FMF template reports provided to the TEC.
14. TEIs borrowing under the medium-value borrowing formula must submit a standard form letter informing
the TEC of the amount they have borrowed, confirming that they have met the criteria and conditions, and attaching a copy of their council minutes authorising
the borrowing.
15. TEIs must develop a business case to justify medium-value borrowings, which could be made available to the TEC upon its request.
16. TEIs must provide copies of the relevant borrowing documentation, if requested by the TEC.
17. TEIs must endeavour to manage any exempt borrowing in a manner that will ensure that the exempt borrowing criteria and conditions are met over the term of borrowing.
18. TEIs must notify the lender in relation to every exempt borrowing facility that the Crown does not guarantee or otherwise accept any obligation or responsibility for TEI indebtedness in relation to the exempt borrowing. TEIs must ensure that a provision to this effect is included in every facility agreement in relation to exempt borrowing.
19. TEIs must inform the TEC as soon as reasonably practicable about any change in circumstances that may have a material impact on the TEIs' ability to manage the exempt borrowing.
20. TEIs must immediately notify the TEC of any of the following events:
- Potential or actual default of any terms of the credit facility entered into;
- becoming unable to meet their repayment obligation;
- non-compliance with relevant covenants included in banking agreements;
- potential or actual breach of any exempt borrowing criteria or standard conditions.
21. TEIs must agree with the TEC an action plan to remedy breaches of exempt borrowing criteria or standard conditions.
Standard conditions: Calculation of borrowing entitlements and tier two entrance criteria
22. The low-value borrowing entitlement of up to 2% of the TEI group's consolidated total revenue is an additional amount over and above any existing tier one type borrowing from the date of this notice.
23. Low-value borrowing for the purpose of calculating borrowing entitlement under tier one includes all tier
one borrowing taken out after the date of this notice.
24. Medium-value borrowing for the purpose of calculating borrowing entitlement under tier two includes:
(a) all existing borrowing, including existing tier one and two borrowing;
(b) the unused portion of existing borrowing facilities;
(c) the unused portion of borrowing approvals;
(d) tier one borrowing entitlements not represented in (b).
25. Tier one and two borrowing entitlements, and entrance criteria for tier two, are based on consolidated group results taken from the most recent audited annual report(s) and the latest consolidated group forecasts submitted to the TEC.
26. The 3% net surplus of revenue requirement for
medium-value borrowings is calculated before abnormals.
27. The requirement that the TEI has not recorded an audited net operating loss is calculated both before and after abnormals.
28. Abnormals are defined as unusual and non-recurring items such as gains on sale of assets, major redundancy or restructuring costs, material changes due to accounting standard changes or one-off costs associated with natural disasters. If a TEI is considering including any other items in abnormals, they should first be discussed and agreed with the TEC.
29. The 3% net surplus of revenue forecast calculation should take into account the proposed borrowing arrangement costs.
30. The debt/equity ratio to be used is as follows:
Total debt (as defined under TEC's FMF) + unused existing borrowing facilities (including any proposed new facilities under the exempt borrowing formula)/(total debt + total equity).
Dated this 1st day of May 2014.
HON STEVEN JOYCE, Minister for Tertiary Education, Skills and Employment.