Laurentian U, creditor protection, and what comes next

The Sudbury-based university entered creditor protection this week. TVO.org explains what that means — for students, the city, and the northeast
By Nick Dunne - Published on Feb 05, 2021
Court documents indicate that Laurentian University has deficits of $42.6 million. (Nick Dunne)

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SUDBURY — Laurentian University filed for creditor protection on February 1, citing years of operational deficits alongside decreasing enrolment and increased expenses due to the pandemic. “As a result of recurring operational deficits in the millions of dollars,” Laurentian’s factum says, “LU is experiencing a liquidity crisis and is insolvent.”

Court documents indicate that the university has deficits of $42.6 million, holds nearly $100 million in long-term debts, and has had its access to multiple lines of credit severed. It is projecting a deficit of $5.6 million in the 2020-21 school year.

The Ministry of Colleges and Universities tells TVO.org via email that it “is not aware of another publicly assisted postsecondary institution that has reached insolvency and determined that proceeding under the CCAA was the best path forward. Nor is the ministry is aware of another publicly assisted postsecondary institution in a similar position to Laurentian University.”

Laurentian president Robert Haché said in a statement that “students and their post-secondary experience are the number one priority,” and Colleges and Universities Minister Ross Romano has said that the ministry is “focused on ensuring they can continue their studies without interruption.” But experts say that the university filing for creditor protection could have wide-ranging impacts on the Laurentian’s structure, students, and faculty. (Full disclosure: TVO's Steve Paikin is the chancellor of Laurentian University.)

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What is creditor protection?

Although the university has declared itself insolvent, creditor protection is not the same thing as bankruptcy. The purpose of the Companies' Creditors Arrangement Act — the legal mechanism that allows companies to file for creditor protection — is “to avoid, where possible, the social and economic consequences of bankruptcy, and to allow a company to carry on business,” according to the Office of the Superintendent of Bankruptcy Canada. Unlike bankruptcy, creditor protection allows Laurentian to keep its assets.

In filing for creditor protection, Laurentian must hand over control of its finances to a monitor, Ernst & Young, which will present a restructuring proposal to Ontario Superior Court judge Geoffrey B. Morawetz. According to Laurentian’s website, it is aiming to submit this by April 30. “They will do a full-fledged strategic review of all the assets and all the liabilities,” says Ian Lee, economics professor at Carleton University. “And then they will come up with, essentially, a business plan. And they will present it to the court. And if the court approves it, it becomes law.”

According to court documents, Laurentian was “reliant on lines of credit to fund operations during certain months of the year,” using a $5 million line of credit with RBC and a $26 million line of credit with Desjardins to operate “during the negative cash flow months,” then repaying them when tuition came in. On January 15, 2021, RBC cancelled its line of credit with the university; having filed for creditor protection, Laurentian will no longer have access to the Desjardins line of credit. If not for creditor protection, Laurentian says in its court documents, as of February 28, it wouldn’t have had the cash to pay its faculty.

Potential restructuring

This restructuring will likely primarily affect staff and faculty, Lee says, as the university will have to address its debts and end its practice of posting operating deficits — and Laurentian’s filings indicate that 67 per cent of its total expenses are in salaries and benefits: “Salaries are their single largest expenditure, bar none. And if you are running a chronic, significant deficit, you’re talking people.” Alex Usher, president at Higher Education Strategy Associates, a consultant for post-secondary institutions, says that layoffs are likely but that “some people may go into voluntary retirement.”

Usher adds that restructuring could involve the amalgamation and consolidation of the University of Sudbury, Thornloe University, and Huntington University, which operate through Laurentian as a federation of universities. “If I'm the university, I’d just unilaterally break the federated universities deal,” Usher says. “They'd like to tell Thornloe and Huntington and Sudbury to go take a jump in the lake because, effectively, they're subsidizing them.”

It is unclear whether students could face the loss of their programs and certain courses required to graduate by next semester. Ernst and Young’s report notes that Laurentian “has a large number of programs relative to its number of students.” There are 175 programs available to the roughly 9,300 undergraduate and graduate students, but 91 per cent of students are enrolled in the top 25 most-attended programs. “Laurentian will keep all stakeholders apprised of additional information and developments throughout the CCAA proceeding,” a spokesperson for Laurentian University tells TVO.org via email.

“It's not surprising to see that caused already a lot of anxiety among students, faculty, and staff members,” says Fabrice Colin, president of Laurentian University Faculty Association. Colin says the path to an agreement with the administration isn’t yet fully clear: “This is the first time [creditor protection] legislation has been invoked for a public university.” When it comes to restructuring, he says, “I hope the process will also lead to a completely new role of the Board of Governors. Having the individuals who put us in that position be shaping the future of the university is a little weird. It should lead to major changes.”

The larger impact on Sudbury and the northeast

Laurentian is more than a major local employer, says Charles Cirtwill, president of the Northern Policy Institute. “It is a central piece of the education system. It is a critical piece of the regional employment infrastructure. It's a critical piece of the regional economy. And it has all of those things tied to the province, particularly from the perspective of the francophone economy, francophone education, and francophone cultural sustainability.” Cirtwill also points to its research and innovation in such areas as mining and environmental science. “If this problem gets worse,” he says, “we're talking about a significant loss of capacity in northern Ontario — particularly, we're talking about not just the northern Ontario loss but a provincewide loss of the francophone professoriate.”

Lee says the restructuring will also affect local businesses: “Anybody who sells any services or products to the university. There's going to be a lot of small businesses that will lose.”

And, Colin adds, faculty are a part of Sudbury’s community: “Many of us chose to live in Sudbury. We moved from other parts of the country or from other countries. Our children are in high schools, on hockey teams.”

What does this mean for Ontario universities?

In response to the creditor-protection announcement, the Ministry of Colleges and Universities appointed Alan Harrison, former chief academic officer, chief operating officer, and chief budget officer at Queen’s University as a “special adviser” for Laurentian. The ministry has also stated that it will be “exploring its options, which could include introducing legislation to ensure the province has greater oversight of university finances.” A spokesperson tells TVO.org that “the government will continue to assess options to support Laurentian as the university undertakes its next steps toward setting sustainable operations.”

Lee worries that “regional” universities in less urban areas and with smaller student bodies, such as Laurentian, will become increasingly vulnerable financially. “They're facing a triple crisis. They’re in remote areas of the country, like northern Ontario, for example. Secondly, they’re dependent on foreign students, and COVID really put a wrench into that. And, thirdly, they don't have the quality of brand like Queen’s or U of T's,” says Lee. “Even if you don't merge the universities, which I think they probably will do eventually, you could merge the programs.”

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