Debt Policy [May 2023]

University’s debt policy limit, based on a 6% debt burden ratio and a 0.8 viability ratio, takes into account:

• the need for debt,
• the appetite for debt,
• key financial parameters and indicators of financial health,
• comparisons to industry benchmarks and credit rating assessments,
• the projected split between internal and external debt
• exposure to indirect debt and
• the projected timing of debt issuance.

The elements of the debt strategy are summarized as follows:

DEFINITION OF Debt:

Debt includes both direct debt and indirect debt exposure. Direct Debt includes all long-term external and internal borrowed funds obtained by any means (e.g. debenture, bank loan), and excludes letters and lines of credit and all short-term and medium term internal financing for purposes such as fund deficits. External debt includes all funds borrowed from third party lenders while internal debt includes funds borrowed by the University from its expendable cash flows. Indirect debt includes debt exposure through a partnership or joint venture arrangement that is not recorded on the University’s balance sheet, but which may expose the University to potential financial or reputational liability.

Debt policy limit:

The debt policy limit includes internal debt, external debt, and indirect debt with fungibility between them. The limit is determined on the basis of debt affordability, moderated when necessary and appropriate by considerations of debt capacity. Debt affordability is measured by the debt burden ratio (principal plus interest divided by total expenditures) and the maximum debt policy limit is calculated using a debt burden ratio of 6%. Debt capacity is measured by the viability ratio (expendable resources divided by total external and indirect debt). Note that internal debt is excluded from the viability ratio as the use of internal resources to fund debt reduces expendable resources and mirrors the settlement of external debt using University funds.

The debt policy limit will be calculated annually on the basis of the 6% debt burden ratio. If the viability ratio associated with that debt policy limit is less than 0.8, then consideration will be given to moderating the debt policy limit.

Credit ratings:

Credit ratings will be excluded from policy determination because they are subject to many external factors, including changes in rating agency methodologies over time.

Long-term borrowing pool (LTBP):

The long-term borrowing pool is the sinking fund that accumulates funds for repayment of external debt. Principal and interest payments related to bullet debenture borrowing will continue to be placed in the LTBP, and, together with investment income, will be used to pay periodic interest payments to lenders, and to pay issue and ongoing administrative costs, with the expectation that the net sum from these additions and drawdowns will be sufficient to repay the bullet debentures at maturity.

Borrowing method:

The borrowing method (e.g. private placements, loans, debentures, or other method) is determined by the senior officer responsible for financial matters. The senior officer responsible for financial matters is authorized to negotiate and finalize borrowing agreements with external or internal parties, and to issue loans from either internal or external debt for projects where borrowing has been authorized by the Business Board.

Internal borrowing programme:

The debt policy limit includes both internal and external debt, and the internal debt component is limited to 40% of the Expendable Funds Investment Pool (internal debt outstanding divided by audited April 30 EFIP balance plus internal debt outstanding). Cash flows are projected to be sufficient to allow considerable flexibility in bridge-financing future external debt issuance. An upper limit of 40% of EFIP has been established to recognize the need for liquidity and to provide for any possible future changes in cash flow patterns. Processes and procedures for internal loans are determined by the University Administration.