University of Waterloo

Debt Management Guideline

May 2, 2002

Over the past decade, governments have reduced capital grants provided to Ontario universities. As a result, universities will likely be required to find resources to fund future capital requirements including buildings. In some cases, it may be necessary for universities to incur capital debt.

New capital projects that increase UW's debt level need to be reviewed based on the viability of assuming additional debt and the opportunity cost of consuming remaining debt capacity. The financial assessment on whether to proceed will be guided by the following:

  • UW's debt service ratio (annual principal & interest payments / total revenue) will be less than or equal to 4% on an institution wide basis (based on a 25 year amortization using existing and anticipated financing rates)
  • A provision to service principal and interest costs for capital projects related to academic activities will be established annually within the operating budget
  • Capital investments for ancillary operations will be considered on a case-by-case basis based on a supporting business plan
  • The debt service ratio target applies to the total combined debt of all UW activities
  • Capital financing subsidies (i.e. interest relief programs) provided by government will not be included in the calculation of the debt service ratio