Topic: | Financial and Operations |
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Approval Authority: | Board of Governors |
Approval Date: | February 27, 2024 |
Effective Date: | January 1, 2022 |
1. Purpose
Capital projects and other university priorities require a combination of funding sources including internal reserves, external debt, gifts, future revenue streams, and grants. Debt is an integral component of the University’s overall capital structure.
The purpose of this policy is to ensure that the University has a robust debt management and monitoring review process. The policy will provide credit rating agencies, the holders of University debt, and other external partners, such as the Ministry of Colleges and Universities, with comfort that the University has a disciplined approach to managing its long-term debt obligations. This policy assists in ensuring that debt is used strategically to support the University’s mission and strategy.
2. Scope and Application
This policy applies to all long-term debt assumed by the University.
3. Principles and Definitions
In order that present and future University administrations preserve the overall financial health and credit worthiness of the University, the University monitors and manages its long-term debt obligations, and develops and updates its strategy to retire or refinance its debt. The University may use debt to finance long-term capital projects, including ancillary capital projects.
The University will not use long-term debt to finance operations.
4. Policy
4.1 The University will maintain the following key financial ratios.
a. Debt per FTE ($)
Measures debt per Full Time Equivalent
Total university debt ÷ FTEs
Where total university debt includes:
- Long-term debt (debentures, bank loans, long-term credit facilities)
- Public-private partnership obligations
- Capital leases
- Less: Sinking fund assets
And where FTEs is the number of enrolled students on a standard credit load basis
Maximum debt per FTE ($) =12,250
b. Viability Ratio
Measures assets available to settle long term debt
Expendable Net Assets ÷ Total university debt
Where expendable resources includes:
- Internally restricted endowments
- Internally restricted net assets (excluding investment in capital assets and employee future benefits and other amounts which are committed to near term uses or otherwise restricted
- Unrestricted surplus (deficit)
Minimum Expendable Net Assets to Debt = 80%
c. Debt Ratio
Measures extent of University’s leverage
Total Liabilities less Deferred Capital Contributions/Total Assets
Maximum Debt Ratio = 35%
d. Debt to Revenue Ratio
Measures ability to repay debt
Long Term Debt/Total Revenue
Maximum Debt to Revenue Ratio = 50%
e. Interest Burden Ratio
Measures debt affordability
Interest Expenses/Total Expenses less Amortization
Maximum Interest Burden Ratio = 4%
f. Interest coverage (times)
An institution’s interest coverage ratio (adjusted Operating Cash Flows-to-interest charges) is a key metric tracked by credit rating agencies to assess capacity to meet annual debt servicing requirements with cash generated from operations.
Adjusted cash flow from operations + gross interest charges÷ gross interest charges
Where adjusted cash from operations is:
- Excess of consolidated revenue over consolidated expense (as reported)
- Amortization
- Less: other non-cash adjustments (before change in working capital).
Minimum interest coverage (times) = 2.5 times
g. Surplus to revenue (five-year rolling average) (%).
Measures financial sustainability
Minimum Surplus-to-revenue (five-year rolling average) (%) = 2%
Summary of Key Financial Ratios
Key Financial Ratio | Min/Max |
Debt per FTE ($) | < 12,250 |
Viability Ratio (%) | >80 |
Debt Ratio (%) | <35 |
Debt to Revenue (%) | <50 |
Interest Burden Ratio (%) | <4 |
Interest coverage (times) | >2.5 |
Surplus to revenue (five-year rolling average) (%) | >2 |
4.2 When the University is not compliant with a debt policy metric, administration will undertake a comprehensive review and provide a report with recommendations to the Finance and Audit Committee on how to obtain compliance.
4.3 The University will maintain a sinking fund, to repay at a minimum 50% of the total balance of long-term debt. The sinking fund will be invested in either the University’s Short-Medium Term Fund or alongside the University’s Endowment Fund and be governed by their respective Statement of Investment Policies and Procedures. On a biennial basis, the Finance and Audit Committee will review the value of the sinking fund relative to projected target and consider recommendations to increase the sinking fund to ensure sufficiency of funds to repay principal.
5. Monitoring
On an annual basis, the Finance and Audit Committee will review the University’s debt management, which will include the following:
- A review of the University’s debt rating, as provided by debt rating agencies
- A review of the University’s debt rating as compared to other universities
- The financial metrics outlined in this policy
6. Review
This policy will be reviewed biannually to consider changes in the University’s objectives and the external environment.
Legislative History: | Approved by the Board of Governors: 4 May 2021; Revised and approved by the Board: 28 February 2023; Revised and approved by the Board 27 February 2024 |
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Date of Next Review: | March 1, 2026 |