4.16 Capital Debt Policy

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This online version is for convenience; the official version of this policy is housed in the University Secretariat. In case of discrepancy between the online version and the official version held by the Secretariat, the official version shall prevail.

Approving Authority: Board of Governors

Original Approval Date: June 1, 2023

Date of Most Recent Review/Revision: N/A

Office of Accountability: Vice-President: Finance and Administration

Administrative Responsibility: Financial Resources

1.00 Purpose

1.01 The purpose of this policy is to establish the terms under which the University can borrow funds from external sources as part of the Annual Capital Budget or individual Capital Project Budget as defined in 4.15 Capital Budgeting Policy. The University is committed to ensuring that an appropriate level of external debt is maintained and that a robust monitoring system is in place.

2.00 Definitions

2.01 External Debt: Includes any type of capital obligation to a third party, including, but not limited to, mortgages, bonds, and term loans.

2.02 Capital Asset: A capital asset is any asset which has been acquired, constructed or developed with the intention of being used on a continuous basis, with a useful life longer than a year, and is not intended for sale in the ordinary course of business. Capital assets include Capital Projects. They also include other types of assets which are not covered in this policy including but not limited to: movable assets, research equipment, library books, land, etc.

2.03 Capital Project: A long-term, capital-intensive investment that is built or that builds upon, adds to, or improves an existing Capital Asset. Capital Projects include:

2.03.01 Facilities Capital Projects include an expansion or renovation of an existing facility, space realignment that involves more than equipment or finishes renewal, leasehold improvements, the construction of a new facility, or the acquisition of land or other real property. Significant open space projects are also Facilities Capital Projects.

2.03.02 Information Technology (IT) Capital Projects include projects that involve the acquisition or development of either services, products, software or hardware, including upgrades from one major version to another, and a range of associated activities and services (including planning, scoping, requirements elicitation, installation, development, integration, configuration, implementation and personnel).

2.04 Capital Project Budget: Is inclusive of:

a) the capital project cost, as defined in policy 4.14, for Facilities Capital Projects and as defined by Total Cost of Ownership (TCO) for IT Capital Projects; and

b) planned Funding Source(s).

2.05 Annual Capital Budget: Planned expenditures to support Facilities and IT Capital projects prioritized through Policy 4.14 Capital Planning and IT capital planning process in a particular fiscal year.

2.06 Capital Borrowing: The process by which any projects approved under a Capital Project Budget or Annual Capital Budget will be funded from external sources or internal loans.

2.07 Internal Loan: An investment of University Funds in an administrative, academic of ancillary project with specific repayment terms for principal and interest.

3.00 Jurisdiction/Scope

3.01 This policy applies specifically to any External Debt that is obtained as part of Capital Project Budget or Annual Capital Budget. Internal Loans are beyond the scope of this policy and are dealt separately in 5.12 Investment Policy for University Funds. All aspects of this policy must be in accordance with other University policies, and the budget as approved by the Board of Governors.

4.00 Policy

4.01 Capital Borrowing will be undertaken only following approval of a Capital Project Budget by the Board of Governors as per 4.15 Capital Budgeting Policy. Such approval shall include the total Capital Project Budget, source of funds for External Debt repayment, and the period of time over which the External Debt is planned to be repaid.

4.02 Faculty or University departments are not permitted to obtain Capital Debt without consultation with Financial Resources, the VP Finance & Administration, and the President. Board approval is required to obtain any Capital Debt.

4.03 The University will seek to borrow funds in an effective manner, taking into consideration factors such as term, cost of borrowing, security required, and repayment options.

4.04 The University may consider obtaining funds from multiple lenders, in order to avoid undue influence of any one source.

4.05 The University will manage its overall debt to maintain an acceptable credit rating, and consider the impact on credit rating of any new issuance of External Debt.

4.06 The University will maintain the key financial ratios as outlined in Schedule 1: Capital Debt Policy Financial Ratios.

4.07 The University will report annually to the Finance, Investments, and Property Committee the following:

4.07.01 The university’s compliance with all covenants and obligations associated with any outstanding debt.

4.07.02 The university’s actual External Debt level for the preceding five fiscal years.

4.07.03 The university’s forecasted External Debt level for the following five fiscal years.

4.07.04 The status of key financial ratios as outlined in Schedule 1: Capital Debt Policy Financial Ratios. Including performance for the preceding five fiscal year, and forecasted for the following five fiscal years.

4.07.05 The outcome of the review of set thresholds, and any recommendations to add, remove or adjust ratios.

4.08 Notwithstanding the above, should any breach in key financial ratios occur, a plan must be put in place by administration, and approved by the Board of Governors, that outlines steps that will be taken in order to bring the ratios back into compliance.

Related Policies, Procedures, and Documents

Schedule 1: Capital Debt Policy Financial Ratios

Approving Authority: Board of Governors

Original Approval Date: June 1, 2023

Date of Most Recent Review/Revision: n/a

Administrative Responsibility: Financial Resources

Parent Policy: 4.16 Capital Debt Policy

1.0 Definitions

1.1 Interest Burden Ratio is defined as Interest Expenses divided by Total Expenses (less Amortization & Depreciation). It is a measure of the university’s debt affordability that compares the level of current debt service with the university’s total expenses.

1.2 Viability Ratio is defined as Expendable Net Assets divided by the Total Long-Term portion of External Debt. It is a measure of the university’s debt capacity that measures the funds on hand that can be used should the university be required to settle its long-term obligations.

1.3 Debt Burden Ratio is defined as Annual Principal and Interest Repayments of External Debt divided by Total Expenses (less Amortization & Depreciation). It is a measure of the university’s debt affordability that measures the extent to which debt and debt servicing is of the university’s total operating expenses.

1.4 Debt to Full-Time Equivalent (FTE) Ratio is defined as Total Long-Term portion of External Debt divided by Total Number of Student FTE. It is neither a measure of debt affordability nor debt capacity but is a useful measure in comparison amongst other universities.

1.5 External Debt: includes any type of capital obligation to a third party, including, but not limited to, mortgages, bonds, and term loans.

1.6 Financial Sustainability: the ability of an organization to sustain itself over the long term so that it is able to continue to support its mission; the balance between the revenues available to institutions to support their academic activities and the expenses they incur in delivering their mission.

2.0 Key Financial Ratios

2.1 The university will review and provide the ratios that are to be maintained in support of overall financial sustainability. At current, these ratios are established as:

2.1.1 Interest Burden Ratio of less than 4%

2.1.2 Viability Ratio of greater than 30%

2.1.3 Debt Burden Ratio of less than 5%

2.1.4 Debt to FTE Ratio of less than $13,000