Frequently Asked Questions

Click each box below for answers to common questions about investing in municipal bonds.

The University of Illinois System uses proceeds from bond sales to finance new facilities, fund deferred maintenance or refund or restructure existing debt.  Auxiliary Facilities Bonds finance the construction and renovations for the "Auxiliaries" of each university, examples include University Housing, Parking and Recreation.  The projects financed by our Health Services Facilities System Revenue Bonds go towards construction and improvements for the facilities of the UI Health System.  Certificates of Participation have been issued to finance construction of utilities improvements, deferred maintenance and academic facilities.

The University of Illinois System issues both tax-exempt and taxable bonds to meet its external financing needs. As a governmental entity, subject to certain restrictions, the System is able to access the tax-exempt market, and therefore, a lower cost of capital. To bondholders, the interest income on these bonds is exempt from federal income taxation. In select cases, the System may strategically issue taxable bonds in order to retain maximum programmatic flexibility or where otherwise required by law.

A credit rating is a rating agency's assessment of an entity's financial health, viability and ability to pay its obligations. Moodys and Standard and Poor's credit rating agencies assign credit ratings to the University of Illinois System's publicly traded securities. These ratings may be reviewed when the System issues new debt or an agency initiates a credit review. For the current credit ratings, rating outlook and last review date please refer to our Credit Ratings page. There is no assurance that any rating will remain for any given period of time or that any rating will not be revised downward or withdrawn entirely. Any such downward revision or withdrawal may have an adverse effect on the market price or marketability of the System's outstanding securities as well as the ability of the System to access the credit markets at efficient prices.

The University of Illinois System issues "new-money" bonds when funds are required for a new major capital project. "Refunding" bonds may be issued when there is an opportunity for the System to reduce it's interest expense or restructure the payment schedule or terms of its outstanding debt. Refunding bonds are issued under the guidelines of the System's debt policy.

Investing in municipal securities involves several risks including, but not limited to: credit risk, interest rate risk and headline risk. Credit risk is the risk of default on a debt that may arise from a borrower failing to make required principal and interest payments to bondholders. Interest rate risk, also known as market risk, refers to the chance that investments in fixed rate bonds will suffer as the result of unexpected interest rate changes. As market interest rates rise, the prices of fixed income securities paying a set coupon rate will fall, and conversely if market interest rates were to fall, that same fixed income bonds' price would rise. Headline risk is the possibility that a news story will adversely affect either the liquidity or pricing of an issuers new or existing debt.

The decision to issue bonds is made after a large capital project has been approved by the Board of Trustees or when financial projections show that savings can be realized by issuing refunding bonds, which will lower the University's interest expense on existing debt. Debt issuance is guided by our debt policy.

 

Last reviewed: October 5, 2022