Thread by @leicesterucu

Some financial background to the crisis besetting our university. Formerly one of the UK’s leading pre-1992 universities, the University of Leicester made significant investments in expansion and update of its facilities pre-Covid, and was in a great deal of trouble even then.

The university, in common with many others in the UK, has been hit by a perfect storm of Brexit and Coronavirus, but this ship was already heading full steam down iceberg alley. Brexit has cut Leicester off from its main source of soft finance, the European Investment Bank.

It has been forced to resort to private placements with harder US insurance companies, who probably thought they were getting a good, safe deal for their pensioners and life policyholders: turns out, not so much.

For operating cash flows and managing repayments it has been forced to rely on its local lender, Barclays bank, at much higher interest rates. The financial statements show that it is paying 22% higher interest rates than its accounts declare.

This suggests penalty charges, and emergency overdrafts. Since 2014 administration costs have mushroomed, even while traditional departmental administration was replaced with a call centre model so that administrators are isolated from the academics.

The university senate was drained of its powers. Many departments lost their identity and autonomy, subsumed into colleges, while student numbers began to fall. The university responded like a classic business caught out overtrading.

They borrowed more at higher rates from US insurers on account of unnecessary capital projects. £55 million of policyholder money was used to gloss over the hole in the balance sheet. An Special Purpose Vehicle (SPV) was created with financier Equitix Investment Management.

This resulted in the SPV owning 90% of some university property while other lands were just sold off, but the university began to run out of easy cash. Some of the lender got wise and made the management put £16 million in escrow so it couldn't be diverted to cover running costs.

But by the end of 2019, the University still only had barely enough cash to cover its liabilities, including the escrow money. Actually, it really only had about 70% of the money necessary, then Covid hit.

The 2019 financials indicate that, going into Covid, taking account of the money in escrow, Leicester was in the same cash to net liabilities position as the London School of Economics was after a semester, and far behind such financially conservative universities as Aberdeen.

The University replaced its Vice Chancellor in November 2019. However, the new Vice Chancellor does not seem to have been able to resolve the situation. The university, unlike most pre 1992 UK universities, has yet to publish its 2019/2020 financial statements.

This indicates significant difficulties, usually a technical breach of covenant with its lenders. Such delays normally result from disagreements with auditors, or other more significant breaches of lender covenants. Assuming no major accounting breach, peculation or fraud ...

this is likeliest to be a problem with the going concern problem in the financials. Thus, the auditor is waiting for a credible business plan from the university and has yet to receive one. The auditor is Ernst and Young (@EY_UKI) in Birmingham.

The university has finally admitted it is in financial difficulties and has instituted this current round of redundancies. The slash and burn approach adopted will likely make matters worse not better due to a storm of controversy, and escalating negative publicity.