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Leaked: Former Laurentian leaders break their silence on insolvency roots in letter to the province

Former board chairs Jennifer Witty, Michael Atkins and Floyd Laughren, as well as former president Dominic Giroux, argue a ‘perfect storm’ of circumstances led to the university’s financial collapse

Laurentian University was hit with a “perfect storm” over the past four years that pushed it over the edge into insolvency, states a March 24 letter signed by the university’s former president and three former LU board of governors chairs.

The letter said Laurentian has been affected by a number of factors in recent years, including a foreign policy dispute in 2018 that led to the withdrawal of 137 Saudi students, who each paid up to $36,000 in tuition.

Second, the province cut domestic tuition rates in 2019 and froze it in 2020. “Instead of domestic tuition going up by say six per cent over the last two years as would normally occur, it went down by 10 per cent,” the letter said. “That’s a gap of 16 per cent in only two years.”

And finally, COVID-19 hit.

“It looks like the impact of these factors outside of the university’s control exceeds $18 million this year alone. That’s more than three times the university’s projected annual deficit.

“It was too much, too fast when the storm hit,” the letter continues.

“No one could have predicted the sudden departure of Saudi students. No one could have predicted a tuition cut. No one could have predicted the pandemic of the century. No one could have predicted all three factors hitting all at once.”

Sudbury.com has obtained a copy of the letter addressed to Shelley Tapp, deputy minister of the Ministry of Colleges and Universities.

The former Laurentian leaders said they wished to offer to the ministry and to special advisor Alan Harrison (who is providing the province with options on Laurentian’s future) some observations based on their experience with the university.

The letter is signed by Dominic Giroux (LU president from 2009-2017, and the current HSN president), Jennifer Witty (board of governors chair from 2016-19 and a current VP at HSN), Michael Atkins (board of governors chair from 2013-16 and former Northern Life and Sudbury.com owner) and Floyd Laughren (board of governors chair from 2010-13 and former NDP Nickel Belt MPP and Ontario Finance Minister).

Sudbury.com has confirmed the veracity of the letter. 

As a news organization, we had previously reached out to all of the former Laurentian leaders who signed this letter for an interview on LU’s insolvency, but they either declined or failed to respond to our requests.

Laurentian University announced Feb. 1 it is insolvent, and had filed for creditor protection under the Companies Creditors’ Arrangement Act (CCAA), a move that’s unprecedented in the post-secondary sector.

The university, which had $321.8 million in liabilities as of April 30, 2020, said it would have run out of cash to meet its payroll obligations by the end of February if it hadn’t secured a $25-million debtor-in-possession (DIP) loan through the insolvency process.

Under the auspices of the CCAA, Laurentian is undergoing court-supervised restructuring. That includes massive cuts to its programs and employees, which were made public April 12, as well as the termination of the federation agreement.

After securing another $10-million DIP loan and another four months’ of creditor protection, Laurentian is now in Phase 2 of its restructuring, which will last until Aug. 31.

Phase 2 will include a review of its assets and real estate holdings to see if they can be monetized, as well as coming up with a plan to deal with its creditors. 

Those creditors include Laurentian’s terminated employees, who have to join the creditors’ pool in an attempt to receive their severance.

The letter from the former Laurentian leaders gets into some of the history they argue led LU to where it is today.

That includes Laurentian’s desire to have a standalone campus in Barrie, where it was already serving 1,200 students as of 2010 through a partnership with Georgian College.

However, Laurentian was not successful in its 2015 application to build such a campus. The letter writers said the Barrie satellite was also resulting in annual losses due to government interference in its operations there.

“The board made the difficult decision in early 2016 to close Barrie operations,” the letter said.

Looking at the books, the letter said Laurentian was faced with an annual deficit of $7.6 million in 2008-9 and a projected accumulated deficit of $44.4 million by 2011-12.

The board requested in 2008 a plan to regain sustainability from the interim president. In February 2009, the board directed administration to reduce the annual deficit to $4 million in 2009-10, $2 million in 2010-11 and contain the accumulated deficit to $11.3 million thereafter.

“That was accomplished,” said the letter. 

It adds that despite these external factors and the resulting financial losses, absorbing sunk capital costs for Laurentian’s proposed Barrie campus and severance costs for faculty and staff in Barrie, the university contained its accumulated deficit to $10.1 million in April 2018, below the $11.3 million ceiling approved by the board in February 2009.

The letter also addresses the renovations and new buildings that have gone up at Laurentian and contributed to the university’s $322 million in liabilities as of April 2020 (although the writers say that number is on par with similar-sized Ontario universities).

The decision to upgrade facilities was among several made after losing 1,000 students in Sudbury between 2006 and 2008 and incurring a $7.6 million deficit in 2008-2009.

“The focus on build for the future was on: eliminating the annual deficit but not repaying the accumulated deficit for now; upgrading student-facing facilities; solidifying the presence in Barrie; being more assertive in recruitment; expanding graduate programs and research in areas of strength; and creating an environment that would be more attractive for graduate students,” said the letter.

“That strategy worked from 2009 to 2017.”

The letter said Laurentian was historically under-spending on facilities, so modernizing was necessary to best serve students.

“Interest rates were at historic lows for borrowing, government partners and student representatives were interested in helping Laurentian modernize, and we had donors who wanted to help,” said the letter.

“So we set out to drag Laurentian University's campus into the 21st century for the good of future students, faculty and growing enrolment.”

Most of the $51-million campus modernization was to be paid with a 25-year mortgage, at an annual cost of approximately $3.2 million, said the letter.

So with all of the aforementioned issues, we’re now at the “perfect storm” described by the letter writers. They think there are a few reasons why Laurentian struggled with this situation more than others.

Laurentian has something called a negative primary reserve ratio. It was negative due to the fact that Laurentian had no reserves and an accumulated deficit since at least 2008, therefore making it less able to respond to adverse events.

As well, Laurentian has what they describe as a “costly salary and academic programming structure.”

“Despite faculty and staff attrition and terminations done over the last 12 years in an attempt to right-size the university, Laurentian reports $10 million more in salary and benefits paid to employees earning more than $100,000 and 67 more employees on the Sunshine List than comparator universities,” said the letter.

The letter said there were inefficiencies with the academic programming structure, which under the Laurentian University Act is controlled by the university senate.

“Some efforts to restructure or suspend admissions to some programs have been successful over the years, others had not,” the letter said.

The former Laurentian leaders made a few requests of the Ontario government.

They said they hoped the province would consider compensating Laurentian for the financial impact of the global pandemic, as it did with grants to other Northern Ontario universities (they think that grant could range between $7.2 and $27.2 million).

They also asked the province to consider increasing Laurentian’s bilingualism grant, which to their knowledge had not been increased in more than a decade.

“We have faith that Laurentian will come through this stronger and that the ministry will recognize and support this extraordinary asset for life in Greater Sudbury and Northeastern Ontario,” the former Laurentian leaders said.