The University of Arkansas system board on Tuesday approved a loan deal of up to $ 19.1 million that they say will help Razorback’s sports department make payments this year and next year on debt facility bond issues.
The loan is a way to refinance annual debt payments and is seen as part of other cost-cutting efforts due to the effects of the covid-19 pandemic on athletics, officials said. UA to the board of directors.
Hunter Yurachek, athletic director at the University of Arkansas, Fayetteville, told board members the department expects to see at least $ 20 million in less revenue from the $ 124.6 million dollars initially planned for the year.
“Deficits and additional revenues can be anticipated if additional events are canceled or if other adjustments need to be made to the capacity levels of our sites,” said Yurachek.
The University of Arkansas system announced the meeting just hours before it began, with the loan deal being the only item on the agenda.
The loan, with Regions Bank, is to be repaid “interest only” in the first three years, with the principal to be repaid over five years thereafter, said Clayton Hamilton, UA’s sports department chief financial officer.
“The repayment will coincide with an additional revenue forecast from the Southeastern Conference,” Hamilton said.
The loan must have a maximum interest rate of 2% per annum and be repaid by September 15, 2028, according to the resolution approved by the board of directors without any opposition. The resolution states that the loan default rate should not exceed 4% per annum.
Hamilton referred to the “very favorable” interest rate and said the loan “will not increase the total sports department debt or extend the number of years of outstanding debt beyond what is currently 17 years old “.
The debt of the AU athletics department has increased in recent years due to various construction and renovation projects.
Taxable bonds for $ 90 million and tax-exempt bonds for $ 24,485,000 were issued in 2016 for the expansion of the Donald W. Reynolds Razorback stadium and the replacement of the Frank Broyles Athletic Center. Donations from donors also helped fund the project, which cost around $ 160 million.
The bond issues are also being used to help fund several other sports facility projects, including a $ 27 million baseball development center approved by directors last year.
The sports department’s total debt as of June 30 – the end of UA’s 2020 fiscal year – was $ 163.4 million, an UA spokesperson said. Future interest payments are not counted in total debt.
For fiscal 2020, total debt service was $ 9,552,600 in principal and $ 5,886,121 in interest. The FY2020 budget, as approved by July 1, 2019, provided for the athletic department’s total estimated spending of around $ 126.5 million.
Hamilton told the board on Tuesday that the debt payments to be paid using the loan totaled about $ 19 million.
In an emailed statement, he referred to a $ 10 million principal payment scheduled for September and a $ 9 million principal payment scheduled for September 2021.
“Most of the principal payments are scheduled for [a] payment date September 15 of each year, ”Hamilton said in an emailed statement.
Regions Bank was selected to issue the loan after a request for proposals, or RFP, was made through PFM Financial Advisors. Hamilton, in an emailed statement, said PFM had a consultative agreement with the UA campus and UA system offices.
“The banks received a notice through a tender that was sent out through PFM,” Hamilton said.
At Tuesday’s meeting, AU Chancellor Joe Steinmetz said a proposal had been sent to 15 banks, with six responses.
The university provided the Arkansas Democrat-Gazette with a copy of the request for proposals dated August 19.
The loan is considered a general obligation of the AU Board of Directors, with the request for proposals stating that a “trust deed” is to secure the loan. The deed was created between the board of directors and Regions Bank in 2019 with the issuance of $ 24.9 million in sports facility bonds.
Steinmetz said the March pandemic resulted in the closure of varsity athletics in the spring, causing “enormous financial pressure on our athletics program here as well as athletics programs elsewhere.” He called the loan “part of a larger package aimed at cutting costs and filling some of the deficits.”
University officials said last month that most sports department employees would see pay cuts starting September 1 for an expected total savings of around $ 3 million.
Yurachek said on Tuesday that the athletics department began with “spending cutbacks” that include cuts to operating, travel, recruiting and event operations budgets. He said playoff incentives have been suspended and 10 vacant positions must remain vacant for the time being.
An annual transfer of $ 2.3 million from athletics to support other parts of the university has been postponed, Yurachek said.
“To date, there has been no time off or downsizing, and we have absolutely no plans to eliminate any of our 19 sports programs,” said Yurachek.
A new football schedule in place due to the pandemic sees the Razorbacks playing five home games in Fayetteville, up from seven previously. The university also said attendance would be limited to between 16,000 and 17,000 at a stadium that can accommodate 76,412 seats.
Hamilton said for UA Athletics it was “a very, very fluid situation for this year and planned for next as well.”