March 1-3, 2006

ITEM 130-2010-R0306    Authorization to Secure Intercap Loan from State of Montana Board of Investments-Renovation of Atrium in EPS Building; Montana State University-Bozeman

THAT: The Board of Regents of Higher Education authorizes Montana State University Bozeman to secure an Intercap Loan from the State of Montana Board of Investments to finance the renovation of the atrium of the Engineering & Physical Sciences (EPS) Building. The amount of the loan is $1,200,000.

EXPLANATION: According to Board of Regents Policy 950.1, Municipal Finance Consolidation Act Participation, any financing through the State Board of Investments in excess of $500,000 must be approved by the Board of Regents.The Board of Regents authorized the renovation (Item 121-2004-R1103) at its November 20, 2003, meeting. MSU is now seeking to secure approval of its final financing plan. A loan from the State of Montana Board of Investments under the Intercap Loan Program is sought to fund the majority of the construction, conditioned upon the Board of Investments increasing its current $1,000,000 maximum loan amount. Repayment of the loan will be financed with non-state funds. Neither state monies nor student tuition or fees will be used.

At the current Intercap Loan interest rate of 3.8%, annual debt service costs are expected to be approximately $144,000 per year, to be repaid over a 10-year period, yielding total payments of $1,440,000 including principal and interest. The Intercap Loan program charges a variable rate of interest. For each 1% increase in the interest rate, annual debt service would increase approximately $7,000.

The sources of repayment are as follows:

1.           The Lockheed Martin Corporation has pledged $500,000 toward the project.

2.           Existing MSU Foundation funds of $340,000 will be reserved for debt service.

3.           Corporate contributions estimated at $600,000 ($60,000 per year) will be reserved for debt service.