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Green Harvest

Chris W. Malins

Traditionally, when the UW has needed funds for capital projects, it has either turned to the State of Washington for funding or issued bonds. While in most cases, these are good choices, there are times when other borrowing instruments make more sense. Issuing Commercial Paper is a method for assuring the lowest rates when funding construction projects.

What is Commercial Paper? Commercial Paper, also known as CP, short term revenue notes, or just short term paper, is a borrowing tool that large corporations and public institutions use to pay for capital project construction and to fund operating needs. UW issued CP would be tax-exempt and would therefore have a lower rate that corporate issued CP. The “maturity” date (ie the date that the amount borrowed is due) for CP can range from 1 to 270 days. A CP dealer works with the issuer (i.e. the UW) to determine the optimal maturity for newly issued paper. When the CP matures, the interest and principal can either be paid off with cash or by issuing additional CP. Since short term interest rates are typically the lowest, CP offers the lowest cost of financing.

UW plans to mainly use CP as interim funding for capital projects during their construction. When construction is completed, the CP will be paid off by issuing long term bonds. By matching the short term debt to the short term capital needs, the lowest interest cost will be achieved over time. Although the main purpose of the CP program is funding buildings under construction, it can also be used for other purposes like real estate purchases and operating needs. Among the many benefits of CP are its flexibility as to maturity, low cost, and ease of use.

The UW’s CP program was approved by the Board of Regents in July and will be up and running by early September. In fact, it will be used for the very first time for the UW’s acquisition of the Safeco properties in late September.