Borrowings: La Trobe Uni and the lessons for UTAS

 

La Trobe University (LU) today announced its intention to raise funds via a Green Bond issue following in the footsteps of UTAS Green Bond raising of $350 million in the 2022 year.

The amount to be raised is not known at this stage and is irrelevant for the purpose of this note which is to have a quick look at the requirements/restrictions for LU to raise money in this manner and provide the current Leg Co Committee looking into UTAS with information which may assist their deliberations.

What lessons are there for UTAS?

UTAS: In more trouble than Burke and Wills?

 

UTAS is in more trouble than Burke and Wills.

The UTAS Council meeting on 27^th April 2023 discussed the 2023 financial forecast. The minutes, reproduced below, make bleak reading.

The Council “discussed the challenging conditions facing the University in 2023” and proceeded to discuss ways “to generate a positive EBITDA in the coming years.” What that implies is that current projections must show negative EBITDAs.

The acronym EBITDA stands for Earnings Before Interest Tax Depreciation and Amortisation, essentially the cash earnings before interest and depreciation (NB UTAS doesn’t pay tax). It’s a standard measure of the cash available to service borrowings and to pay for capex amounts (new buildings say).

UTAS’ EBITDA in 2022 was $30.9 million. To be in negative territory in 2023 reveals an alarming downturn.

A business might break even from a profit perspective, but adding back depreciation and interest gives a figure for cash earnings.

If UTAS has negative cash earnings, it can only survive by running down its investments or borrowing more. Even if capex spending is zero, it means UTAS is borrowing to pay interest. Ouch.

Running down investment and borrowing more was the plan for financing the Hobart move. Without that UTAS survival changes would be greater as universities traditionally have a larger buffer of cash and investments than most in the private sector.

The minutes suggest future challenges will start to be addressed in October. This highlights the nature of UTAS’ business. Whilst others might be able to implement changes more rapidly, UTAS is tied to the cycle of the academic year. It’s going to have to live with cash haemorrhaging for the rest of 2023 and hope things can be put into place post October to take effect before the 2024 academic year.

The 2022 Annual Report reflected “(t)hese past three years have been among the most challenging our University has ever faced.”

It’s going to get worse. Far worse.

UTAS: The State government's role Part 2

 

(Apart from the three introductory paragraphs, this blog was sent as a supplementary sumission to the Legislative Council’s Inquiry into Provisions of the University of Tasmania Act 1992.)

Maybe it was a coincidence or maybe it was intended. UTAS dumped a huge cache of documents and minutes on its website which related to its intended move into the Hobart CDB just days after the Legislative Council inquiry met with Treasurer Michael Ferguson on the 6^th July 2023, thereby resticting the sorts of question he would otherwise have faced, essentially about  the role of the State government in UTAS’ affairs.

The data dump can be found HERE.

Pursuant to sec 7(2) of the UTAS Act the Treasurer needs to give UTAS approval before it undertakes any borrowings.

The previous blog on this site explored some of the issues around UTAS’ borrowings following the Treasurer’s brief appearance, what it means for the State governemnt and we as Tasmanians, and what the Treasurer knew/didn’t know/should have known/ignored about UTAS.

This blog attempts to fill in some of the missing pieces of the puzzle gleaned from the new information in the public domain.

UTAS: The State government's role

 

The following are comments which formed part of a supplementary submission to the Legislative Council Inquiry into the Provisions of the University of Tasmania Act 1992 following Treasurer Michael Ferguson’s appearance before the Committee on 6^th July 2023

The Treasurer’s brief appearance highlighted some of the relevant issues relating to the State Government’s role. The issues canvassed here include:

·        Ownership and/or control of UTAS’s assets

·        The reason for Sec 7(2), the need for UTAS to obtain the Treasurer’s approval before borrowing.

·        Borrowing like arrangements: service concession deals.

·        Borrowing like arrangements: other.

·        The University of Wollongong (UOW) experience: A cautionary tale.

The notes were prepared to assist the Committee understand the financial issues facing UTAS. They were prepared before the massive data dump by UTAS of documents, Council minutes etc relating to UTAS proposed relocation to Hobart CDB which occurred after the Treasurer’s Committee hearing, which conveniently meant the Committee was unable to chase up some interesting leads about funding the CDB move and what it may mean for UTAS, the state government and for all Tasmanians. An up coming blog will cover the more interesting revelations.

UTAS : The road ahead

 

The financial overview in UTAS’s recently released annual report for the calendar year 2022, although much more extensive than in past years, did little to explain UTAS’s current financial position.

Detailing what went up and what went down is a mind-numbing exercise, which does little to explain the financial challenges or “how we will approach the years ahead as we enter ever more variations of the new normal”, as UTAS noted in its report.

At a guess that’s “PR speak’’ for “We’re not sure where we’re going, but we’ll give it a go.”

Blessed with gifted land, funded by capital grants for buildings and endowed with bequests and other amounts for education and research purposes, UTAS has gradually built its net assets position.

Apart from capital grants and investment income, UTAS makes losses every year, losses from the core activities of teaching and research, and losses caused by a relentless pattern of what is described as restructuring costs. We aren’t told what these are, whether they’re consultants’ fees, or whether they relate to the Hobart relocation. All we know is, at $55m over the past eight years, they’re much greater than the deficits from teaching and research.

UTAS' 2022 Financials: Is UTAS still on track?

 (This is a note prepared for the Legislative Council's Inquiry into the Provisions of the University of Tasmania Act 1992)

Introduction

The recent tabling of UTAS’ 2022 Annual Report is an opportune time to have a close look at UTAS’ current situation.

Rather than just a snapshot of one year’s financials, a few past years will provide a better basis to form a view of how UTAS has arrived at where it is now, and what this means for the future.

The following note is based on UTAS’ financial statements since 2015. It is not a management accounting exercise looking at costs, revenues and student numbers etc, for that is outside the Committee’s Terms of Reference, rather an explanation of UTAS’ overall financial situation.

Executive summary

UTAS’ net profits are very volatile.

Stripping away capital grants and investment income however leaves a more sedate picture.

Unfortunately, all that’s left are losses, losses from the core activities of teaching and research, and losses caused by a relentless pattern of what UTAS describes as restructuring costs.  

It’s not so much that UTAS’s buildings may no longer be suitable, but its current financial model is not fit for purpose.

The gobsmacking reality which UTAS has kept hidden, is that deficits from core activities have been funded by investment income, which inevitably will fall as investments are redeemed to fund the Hobart CDB move.

If as UTAS has suggested, the prize at the end of the day is only $200 million once the Sandy Bay assets are monetised (as consultants term it) and the development costs in the Hobart CDB paid for, how will deficits from UTAS’ core activities be funded?

UTAS borrowings

 

This is an additional submission to the Legislative Council’s Inquiry into the Provisions of the University of Tasmania Act 1992 supplementing submission # 93, evidence given on 12^th December 2022 and a further submission made 19^th December 2022.

The supplementary submission was prompted by the lack of transparency and scrutiny surrounding UTAS’ borrowing arrangements as it pushes on with its move into the centre of Hobart.

The discussion is widened to include the raising of funds other than by traditional borrowings and whether Sec 7(2) of UTAS’ governing Act which requires the Treasurer’s approval to borrow, needs to be broadened to include other borrowing-like arrangements.

This is followed by comments on other arrangements that impact of UTAS’ financial position.