So, on January 31 last year Laurentian went into the CCAA process, thus bringing forward hundreds of millions of dollars in debts, and over the course of the next three months tore itself apart in the name of reaching solvency.  100-odd faculty were fired and a few dozen programs shut.  It was all extremely grim.  The question is: was it necessary and were there alternatives?

Working backwards from the moment of insolvency, one can ask what happened and ask counterfactuals.

1. What happened to the Desjardins money?  This is key to understanding how the last few weeks before the crash played out.  If the Desjardins facility was available to Laurentian but went unused, then this whole thing was avoidable and serious questions have to asked about motives.  If Laurentian tried to use the facility but was turned down, then that was pretty much the moment when everything became inevitable.  The only thing that could have changed things at that point was a bailout: internally, the institution was out of options.
   
2. Why didn’t the government come up with a better bailout offer?  Excellent question.  The decision not to bailout Laurentian had momentous consequences, because when the university went for CCAA protection, it suddenly became clear to the banks that the hundreds of millions of dollars they had lent to universities around the province an unsecured basis on the assumption that they were implicitly guaranteed by the provinces were suddenly at risk.  This will raise borrowing cost for the entire sector, and possibly the hospital sector as well.  Obviously, moral hazard will have been one excuse, but it wouldn’t have been that hard to lend the university around $35 million to get through 2021, to be recovered through deduction at source of the university’s subsequent five annual grant disbursements, in exchange for reducing expenditures of (say) $10 million per year.  This would have solved the problem completely.  It is unclear why this route was not taken (though to be fair, it would almost certainly have led to a lawsuit from LUFA about unfair bargaining tactics), but I bet the government – which is now offering a $35 million anyway, only after all the pain has been inflicted – wishes it had found a better way, sooner.
   
3. Wasn’t exigency an option?  No.  Or at least not anytime in 2020, not without a big infusion of money from government.  The point of exigency clauses in Canadian university collective agreements is to make it as difficult as possible for institutions to reduce costs in the short-term, but it never occurred to anyone that the alternative to exigency was insolvency protection and the mass layoffs that can go with it.  My guess is that a fair number of both administrations and unions are now re-thinking how to re-work those clauses, now that this alternative is now clearer.
   
4. Was the cash crunch a “perfect storm”?  Or was it avoidable?  Yes, and yes.  I mean, sure: COVID, the tuition cut, the Saudis leaving – the things a group of former Board Chairs called “a perfect storm” – were indeed the proximate causes of collapse. They were all sudden and to some degree difficult to foresee.  But the structure was very precarious to begin with.  People focus in the $100 million in long-term debt, but that was being managed reasonably well. It was everything else that was the problem.  Deficits in eleven of the previous thirteen years.  Cash reserves down to barely a couple of weeks worth of costs every April.  Lines of credit used to get them through from January to September.  “Internal borrowing” – that is, use of money in restricted accounts – to fund the construction of a $6 million laboratory for a VP Research who took off for Toronto with indecent haste, leaving the laboratory effectively unused.  The university might have got away with it all had it not been for the “perfect storm”, but as you’ve no doubt noticed, every other institution in the country managed to survive.  And the reason is that they weren’t in such desperate trouble to begin with. 
   (It seems banal as a lesson, but “don’t let your short-term liabilities and deferred contributions vastly exceed your actual short-term assets” sure seems like the key one to emerge from all of this).
   
5. Was all the secrecy around the insolvency necessary?   Absolutely not.  And this is maybe the weirdest part of the whole process.  Insolvency is an earthshaking, community-destroying event, perhaps even more so because Laurentian is a big employer in a not-very-big town.  And so, the opacity and refusal to bring the community into the decision-making process not only made it look as though the university had something to hide, it cut off the institution from any communal path back to rightness.  None of it was necessary. 

The institution’s plight could have been made plainer back when COVID hit.  Discussions could have been held in the community about alternatives.  I would point you, for instance, to what is happening at Kentucky State University, an Historically Black University which has run into similar-sized trouble and is looking for a state bailout.  There, no one needed to guess about the size and shape of the problem because the state did a quick audit into finances, ascertained the size and causes of the problem, and published it in advance of a legislative decision on a bailout (or, failing that, mass layoffs).   While Laurentian probably would have had difficulty doing this while it had short-term debt repayable upon demand, once the Desjardins loan was paid, there was nothing to stop it doing this.  The objections, presumably, were both political (the union wouldn’t have played ball, preferring to claim the whole thing was a conspiracy to blow up collective bargaining) and tactical (the lawyers and consultants Laurentian had hired would not have had as free a hand in working things out).  But so what?  What would the harm have been in trying?

Imagine, if you will, that Laurentian’s President Robert Haché had told the whole story to the whole community in fall 2020 and said: “folks, here’s the choice: i) insolvency and mass layoffs, or ii) all staff are going to give up 10% of their paychecks for 2021, 2022 and 2023, and agree to both a transparent method of measuring program costs and eliminating the unsustainable ones, but no layoffs.  Both options suck, I know.  That we have to do it at all speaks to some bad risks taken a few years ago and some short-term revenue problems that we just can’t overcome.  But we need a way forward.  Which way should it be?”  It’s possible the faculty union in particular would have gone around claiming this was a false dichotomy, the crisis wasn’t real, etc.  But so what?  In which case, even if we ended up exactly where we are now, everyone would have known a) what happened and b) that they could have been part of an alternative.  People would have not felt lied to, and they would have had a feeling of agency.  And moving forward, that could be worth a lot.

I have no idea how this is all going to play out in the end.  I believe Laurentian is not exiting the insolvency process as planned on January 31 because the claims process seems set to run on well into the spring.  Until we know how much of the $360 million in claims Laurentian is facing actually needs to be paid and over what period of time, it’s hard to see what the future is.  The negotiations process is super-tricky.  Basically, every creditor gets one vote per dollar lent, with a 2/3 majority required for a vote.  Near as I can tell, the two biggest claimants are the TD & Royal Bank, who are owed $91 million, plus the ex-employees who are claiming their severance and pension rights, both of whom would have reason to hold out for high-percentage repayment because they think the government will eventually provide a backstop. 

Will they be right?  Who knows?  This saga, over a decade in the making, still has a ways to run.  But one thing I do know is this: however Laurentian got to the point it is at now, it has been very ill-served by a lawyer-driven, secrecy-obsessed process which has denied the community not just the opportunity to decide its future collectively but also the right to even know what actually happened.  It would be good for someone to conduct a public inquiry to allow all the facts to be examined, preferably one established by the Board and Senate jointly, but if not by the provincial government.  We can’t learn the right lessons from this imbroglio if we don’t know what actually happened and why.