February 3rd, 2021 - Alex Usher
Laurentian University will run out of cash at the end of February. That’s the most important – but far from only - take-away of the Monitor’s Report filed Monday in an Ontario court as Laurentian University filed for creditor protection.

People are throwing around words like “unprecedented” to describe what is happening at Laurentian. I’m always careful about that because before WWII a lot of wild things happened in Canadian universities (the Honorary Bursar making off with the entire University of Manitoba endowment at the height of the Depression is my favourite). And Acadia got pretty close to this position in the last decade, though it engineered a behind-the-scenes bailout and hence never had to go to face the courts in quite this way. But maybe we shouldn’t be picky: this is still a big effing deal and we should treat it as such.
I don’t quite know where to start here because it seems to me that there is still a lot to come out on this story. That Laurentian was having persistent difficulty balancing its budgets was well-known. Figure 1 shows that in seven of the past eight years, Laurentian reported a loss. I am fairly sure no other university in Canada can say that.

Figure 1: Laurentian Net Revenue, 2012-13 to 2019-20 (in Thousands)
Now if you read the filings, the Laurentian administration is making a full-throated case about how it needs to restructure, get rid of uneconomic programs, etc. – and it needs to declare financial exigency under creditor protection to do so because the faculty union has been unremittingly obstructive towards all attempts to do this in the past few years. There is a great deal of truth to this argument, and I have no doubt that Laurentian would be a better university if it could take advantage of a crisis to do all of this. But let’s be clear: the accumulated deficit over the last eight years is under $12 million. On a $200 million budget. Alone, that’s not what caused Laurentian to seek protection. There is something else going on here.

Part of that something else becomes apparent as you read through the court filing and see things like this:
Got that? No separation between operating funds and restricted funds. Like, say, professors’ research grants, scholarships, and Retiree Health Benefit. It’s all been co-mingled. And then this:
So, this money is not just co-mingled but in fact has already been spent. In fact, as the Monitor notes, “(Laurentian) estimates the deferred contributions liability to be approximately $36.5 Million” and “while these amounts are recorded as a liability on (Laurentian’s) balance sheet, no funds have been set aside or are currently available to satisfy these obligations.” There is also something like a $20 million gap in the pension fund, though because this was valued on April 30th when equities markets were still tanked because of COVID, I’m inclined to think it is not a big deal. 

Now, there’s a big gap here between $12 million in recurrent deficits and $36.5 million in now unavailable restricted funds. I have yet to see anything that explains how one situation led to another and that, I think, is the very big question that needs to be answered over the coming days. But there is yet another gap between a $35.5 million gap that at least conceivably could be bridged through a bond or borrowing and the announcement Monday that Laurentian only has $13 million in cash on hand and this will run out in the next four weeks. There is something bigger going on here that still needs an explanation beyond what we can see in the court filings. I can’t speculate on what it is: there’s just not enough public information at the moment. 

(You may be scratching your head at these numbers because some of the coverage uses figures like a “$100 million debt”. Remember about $85 million of that is mortgages on construction undertaken over the last decade – most of these are deals that extend into the 2040s and aren’t costing the university more than $4-5million per year. You should ignore this part of the story and focus on the short-term debt because that’s where the story – whatever it is – is.)

But clearly something happened this summer. Both Desjardins and Royal Bank cut their lines of credit to the institution; in Desjardins’ case, an outstanding $14 million was paid in full when September tuition came in (this was not presented in the court filings as the result of a repayment-in-full demand by Desjardins, but given the context it sure reads that way). What, if anything, did the banks know that was not evident to anyone else at the time? We simply don’t know. 

What we do know is that by November, the Board of Governors’ knew something was very wrong and set up a special “In Camera Ad Hoc Committee on Contingency Planning” which had “the authority to act on behalf of the Board on matters related to all initiatives to address LU’s financial challenges” – which is one hell of a broad mandate. Apparently 9 of the Board’s 25 members were involved, but we do not know which ones. And from what one can glean from the documents, they headed very quickly towards the idea of creditor protection. 

The big question people are rightly asking right now is – how in the hell did this happen? Not just “how does a university with millions in restricted funds have only one bank account” (although that is important). But more: how the hell did KPMG, which has been Laurentian’s external auditor for at least ten years, miss this? How did they give Laurentian a clean bill of health on its 2020 financial statements just this fall at almost exactly the same time that the banks were pulling the plug? This seems like an area where lawyers may get involved at some point.

Unfortunately, beyond all this we’re basically in the dark about what has happened and where things go from here. And I don’t just mean you and me, reader, I mean folks in Sudbury as well. The extent of the damage and indeed anything to do with Monday’s filing was held incredibly closely within the Senior administration. In fact, apart from the President, Robert Haché and presumably the VP Finance, it’s not clear anyone knew what was going on until the moment the university hit “send” on the new release announcing it was seeking creditor protections. I’m told that Deans and some senior administrators had as little as 20 minutes notice before this came out. And since the release, it’s been radio silence from Haché and co. Apart from one fairly tone-deaf “difficult but optimistic message” on Monday there has not been a peep from the top floor of the RD Parker Building. Which, you know, given that you’ve just declared insolvency and have publicly announced you don’t have enough money to pay peoples’ salaries in March, might not be considered the world’s greatest comms strategy. I suspect this is going to get a lot uglier before it gets better, and you can expect to read a lot more from me as things unfold (starting tomorrow when I will be digging into institutional finances a bit). 

But most importantly right now: thoughts and best wishes to my friends in Sudbury. It’s going to be rough but hopefully better days are ahead.