RBC, TD snared in university bankruptcy

Laurentian University owes three Canadian banks $91 million, according to documents in a bankruptcy filing that one analyst says will be a test case for how the country's schools deal with growing financial pressures.

The Sudbury, Ont.-based university requested court protection under the Companies' Creditors Arrangement Act on Monday, citing widening deficits, declining enrolment and costs related to the pandemic. Laurentian is one of the financially weakest universities in the province, and “we intend to change that,” president Robert Hache said in a statement.

Laurentian had $321.8 million in liabilities as of April 30, according to a report filed by the monitor in the case, Ernst & Young. It currently owes $71.1 million to Royal Bank of Canada, $18.5 million to Toronto-Dominion Bank and $1.3 million to Bank of Montreal under a variety of credit facilities, the report said.

As its financial situation deteriorated and unsecured credit lines became unavailable, Laurentian began the process of obtaining a new $25-million secured interim financing, known as a debtor-in-possession (DIP) loan, from Firm Capital Corp., a boutique bank based in Toronto. The money will allow it to continue operating during the bankruptcy process and minimize disruption to its 9,300 students.

Laurentian approached the Ontario government about its liquidity crisis in recent months, the monitor said. Ross Romano, Ontario's minister of colleges and universities, said the situation was “unprecedented.” The government named Alan Harrison as special adviser to help Laurentian figure out a path to sustainability.

“The government will be exploring its options, which could include introducing legislation to ensure the province has greater oversight of university finances and to better protect the interest of students and Ontario taxpayers,” Romano said in a statement. “The government wants to ensure this issue does not repeat itself in other institutions.”

Like other public universities in Canada, Laurentian is heavily subsidized by governments. Operating grants and tuition fees account for about 70 per cent of revenue.

The 60-year-old school provides undergraduate and graduate degree programs in business, engineering, medicine, social sciences, for Canadian and international students. It employed 1,751 people as of Dec. 30, according to the monitor's report.

Laurentian said in the court filings it had tried to reduce costs with job cuts and a hiring freeze. Salaries and benefits represent about 67 per cent of total expenses.

The university also has a pension deficit. Its defined-benefit plan had a solvency ratio of 85.4 per cent, representing a going concern deficiency of about $4.5 million, the monitor said.