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Long-term Debt Policy

Long-term Debt Policy

Topic: Financial and Operations
Approval Authority: Board of Governors
Approval Date: May 4, 2021
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 stakeholders, 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

The University will maintain the following key financial ratios.

4.1 Debt per FTE ($)

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

4.2 Viability Ratio (Expendable resources to debt (%))

Expendable resources ÷ Total university debt

Where expendable resources include:
• 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 resources to debt = 80%

4.3 Interest coverage (times)

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)

An institution’s interest coverage ratio (adjusted OCF-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.

Minimum interest coverage (times) = 2.5 times

5. Surplus to revenue (five-year rolling average) (%).

The University’s consolidated operating balance in relation to its total revenue is a key measure of financial sustainability. The credit assessment of an institution is often assessed based on an historical five-year rolling average of this ratio, where the adjusted surplus (deficit) is the excess of consolidated revenue over consolidated expense (as reported), less any non-recurring/ one-time revenue or expenses.

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
Interest coverage (times) >2.5
Surplus to revenue (five-year rolling average) (%) >2

 6. 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

7.  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: May 4, 2021
Date of Next Review: January 2, 2024