Diapositiva 1

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International Forum on Investment in Private
Higher Education IFC The World Bank, January
21 23, 2004 Moving Beyond The Hypothetical
In Financial Structuring Case Study
Competitive Financing Through Securitization of
Future Tuition Payments Horacio Ríos Domic Vice
Chancellor, Finance, Administration and
Development Diego Portales University, Chile
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Status before the project

• Teaching and Research 12 undergraduate degrees
  in a limited number of areas, and a scarce
  scholarly research and publications program.
• Academic Model traditional, 4 to 6 year
  undergraduate degree programs lacking easy
  continuation onto graduate degrees.
• Infraestructure 61,082 mts2 and a 10 year
  capital investment plan to accommodate new
  programs and growing enrollment.
• Financing only long-term borrowing from local
  banks, engaging mortgage guarantees. No other
  financing mechanisms (e.g. leasing) were used.
• Personnel 1,364 in 2002 (1,006 faculty and 358
  staff).
• Enrollment 9,713 in 2002, 10,750 in 2003.

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Project objectives

• Access enough long-term financing to secure the
  financial sustainability of an adequate capital
  investment plan, and thus advance the
  Universitys competitive position within the
  industry.
• Change the way the nations universities access
  financing and report financial statements. Every
  quarter, UDP must submit financial reports to
  regulatory agencies and make them publicly
  available.
• Borrowing US23mm from local banks implied a
  10-year timeframe for completion of our
  infrastructure project.    
• Lead innovations within the industry.
• Secure sound, efficient and transparent
  financial management.
• Early implementation of the capital investment
  plan will save US1mm and give place to a
  consistent corporate identity throughout our
  facilities.

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The Process
9 Months
sep-02
oct-02
nov-02
dec-03
jan-03
feb-03
mar-03
apr-03
may-03
Steps
1. UDPs valuation
1.1. Development of financial model
1.2. Identificaction of possible liabilities
1.3. Selection of tuition and fees cash flows
1.4. Preliminary risk rating by agencies
2. Structuring
2.1. Selection of securitization agency
2.2. Financial modeling of bond
2.3. Risk rating of bond
3. Legal aspects
3.1. Selection of legal counsel
3.2. Writing and revision of legal documents
3.3. Presentation before regulatory and rating
agencies
4. IFC
4.1. Analyses and clearances
4.2. Negotiation
5. Marketing Communications
5.1. Communications to market
5.2. Road Show
6. Placement of bond
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Road Show y Bond Placement

• In April 2003 we held private one-on-one
  meetings with prospect investors, where we made
  presentations about the University and the bond
  structure.
• During the final road show we presented our
  development strategy, capital investment plan,
  and the specifics of the bond placement.
• The IFC was an active participant along with
  the securitization agency, and financial and
  legal advisors.
• The placement had a demand 30 higher than its
  nominal value from institutional investors
  (retirement funds and insurance companies) and
  brokerage firms.
• Its rate was UF 5.45, a spread of 310 basis
  points over Chiles treasury bonds with equal
  maturity.

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Experience gained and lessons learned

• The operations success is a function of its
  results, i.e., despite an improvable process,
  results were optimal.
• Importance of having reliable historic data so
  as to conduct adequate analyses and the required
  financial modeling.
• Crucial requisite of having a team of highly
  skilled and committed professionals.
• Importance of incorporating a strategic partner
  such as the IFC, which contributes not only its
  guarantee but also its world-wide knowledge of
  the education sector.

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Securitization of future cash flows - Concepts
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Bond Structure Cascade Mechanism
Selected Schools
Collection Account
Receivable Accounts Guarantee
Interest Fund
IFC
Principal Fund
UDP
Acceleration Reserve
Covenants Reserve
Guarantee Reserve
UDP Originator
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History and Outlook