Concordia facing credit crunch

Because of debt taken on to construct its two newest buildings, Concordia now owes almost half a billion dollars in long-term debt, and faces the prospect of hitting a debt-wall inside of five years.
According to the university’s charter, Concordia is permitted to take on a maximum of $500 million in long-term debt. Since 2001, the university has seen this debt rise from approximately $121 million to more than $415 million in 2007, largely as a result of debt taken on to fund the construction of the EV and JMSB buildings.
Although university officials maintain that the Concordia’s finances remain stable, since the construction of the two buildings began in 2002 the university has dropped from a profit of more than $24 million to a deficit of approximately $7 million in 2006. Although the university’s administrators point out that the university’s deficit for 2007 was only $291,000, the university nonetheless borrowed more than $40 million in lieu of government funding designed to cover various expenses.
According to VP Financial Services Larry English, Concordia’s deficits are attributable to the government’s underfunding of the university.
University administrators contacted by the Concordian concerning the university’s debt provided decidedly mixed messages.
Although initial inquiries to Director of Media Relations Chris Mota drew assurances that “Concordia has no long-term debt,” Mota refered all subsequent questions regarding the “Long-Term Debt” section of the University’s financial statements to Senior Media Relations Advisor Tanya Churchmuch.
Churchmuch assured the Concordian that, while the university does, in fact, owe the listed amount of debt, only those sections of Concordia’s bond-debt on which the university pays interest – approximately $206 million – would be affected by the Charter’s restrictions.
Although subsequent inquiries to VP Financial Services Larry English confirmed that the university was, indeed, within approximately $80 million of the debt-ceiling, English argued that he fully expected the government of Quebec would likely go forward with any legislative changes necessary to protect the university.
“If they don’t increase the maximum, then yes, I’ll be in some trouble,” he added, “but I can’t see any reason that that would happen.”
English rejected out of hand comparisons between Concordia’s situation and that of the Universite de Quebec a Montreal (UQAM). Which is currently in government mandated restructuring, after serious financial difficulties stemming from the construction of two new buildings.
In 2000, UQAM borrowed over $100 million to finance the construction of two new buildings. As a result of cost overruns, the school was obliged to take on an additional $100 million mid-way through the project. Before construction could be completed on the second building, the university ran out of money and was forced to abandon the project.
UQAM’s debt quickly grew throughout the term of the project, until the university was borrowing money simply to pay the annual interest on its debt.
English assured the Concordian that both the EV and JMSB buildings are no danger to the university’s finances, and that the JMSB building is actually coming in under budget.
English dismissed worries that Concordia is taking on too much debt, noting that the university’s fundamentals are still on solid ground.
“We’re still better rated than the Government of Quebec by [international bond rating agencies],” he said.
One of the results of Concordia’s recent borrowing is that the equivalent of 50% of all tuition fees paid by Concordia students in 2007 were used to pay interest and bond-fees on the university’s debt.