As the Feb. 1, 2021 one-year anniversary of Laurentian University’s insolvency approaches, post-secondary consultant Alex Usher has put out a four-part detailed analysis of the situation on his blog.
Part 1 of his analysis looks at Laurentian’s building spree in the last decade, one of the factors that is credited with the university’s current financial situation, while Part 2 looks at the “external shocks” to the university, including provincial cutbacks and the COVID-19 pandemic. Part 3 looks at the 2020-21 financial year, and the immediate circumstances leading into Laurentian’s insolvency, and part 4 looks at “questions, alternatives and lessons” surrounding the situation.
One of the more interesting highlights of Usher’s series of blogs is contained in Part 3, and looks at a $26-million line of credit Laurentian held with Desjardins, which he said could have spared it insolvency a year ago if it were still available to the university.
Usher, the owner of Higher Education Strategy Associates, said that when the COVID-19 pandemic hit Canada in March 2020, the consequences to Laurentian almost immediately came into view, with an expected multi-million financial hit to the university’s already precarious financial situation, and the years of budget deficits the school experienced.
“Remember that most of these deficits weren’t financed through long-term lending,” said Usher, in his blog.
“In practice, they were paid by the institution cannibalizing future revenue – basically paying April’s bills with May’s income, and/or using a line of credit to get by.
“This prospect would have seemed extremely scary, and so at some point in March 2020, it seems that the university began to look for insolvency counsel, though this was known by almost no one at the time (it was revealed in the Ontario legislature just last month).”
While the hit from COVID losses were not as bad as expected, “on its own, that probably wasn’t enough improvement to save the situation,” Usher said,
“The key to pretty much everything at this point was the line of credit from Desjardins. With access to that line of credit, the institution likely would have had the liquidity to at least get to the end of the year. Without it, there was a catastrophic liquidity crunch.”
Usher said we don’t have a full picture of what happened to the Desjardins line of credit “because Laurentian’s affidavit is frustratingly and perhaps deliberately imprecise on the matter.”
However, Usher said there are things we do know: the line of credit, negotiated in 2019, was for a maximum of $26 million; as of April 30, 2020, Laurentian owed $14.4 million on the account; it was a regular practice to use this line of credit to improve liquidity between tuition payments in January and September; the credit facility contained the boilerplate clause referring to repayment if there is a “material change” to the borrower’s situation; and, as of Jan. 31, 2021, this line of credit had not been cancelled, and Laurentian owed no money to Desjardins.
He said that at some point, Laurentian surrendered $14.4 million in cash.
“Did Desjardins actively call in the loan because it was worried about Laurentian's financial situation?” he asks.
“Did Laurentian repay voluntarily, assuming that it would be able to use the line again the following January, only to find that Desjardins would not re-up the loan because of concern about financial stability? In either case, why not cancel the facility?
“Or – the most sinister interpretation – did Laurentian repay this loan voluntarily not under the assumption it could get it back in a few months, but rather with the understanding that losing that cash would accelerate the crisis to come?”
Usher said in his blog that on the available evidence, this question cannot be definitely answered.
“But I think the fact that the eventual insolvency happened around the time of year Laurentian normally used the credit facility (i.e. after the January tuition payments were in) points to the second option: that is, Laurentian paid assuming it could use the facility again, but that Desjardins refused to disburse any new loans until Laurentian’s financial situation improved, while leaving the credit facility intact because it wanted the university’s business in the future,” he said.
“I can’t prove that, and I understand other interpretations are possible, but that’s where I sit until someone at Laurentian decides to tell the real story.”
Sudbury.com has reached out to Laurentian for comment on the issue of the Desjardins line of credit, but has yet to receive any information.
We’ve also interviewed Usher in anticipation of the Feb. 1 one-year anniversary of Laurentian’s declaration of insolvency and filing for creditor protection under the Companies’ Creditors Arrangement Act (CCAA), so watch out for that article.