The first clear signs that UK universities are negotiating with lenders to avoid the risk of breaking banking covenants owing to the financial pressures of the pandemic have begun to emerge.
In its financial accounts for 2019-20, Solent University, Southampton says it managed to “reset or waive” some of its covenants with banks after it “stress-tested” various financial scenarios and found that it could end up breaching terms in the worst cases.
“Under certain scenarios the university could have breached some of its bank covenants as at the end of July 2021,” the report states.
“As a response to the potential impact on covenants of these scenarios agreement has been reached with all of the university’s bankers to either reset or waive the potentially affected covenants for July 2021 to take into account potential downside scenarios in the forecast results, providing a level of additional headroom should it be required.”
The university, which before the pandemic had been on target for a budgeted surplus of £2.5 million in 2019-20, said it had instead posted a deficit of £3.3 million.
Among its biggest hits to revenue was a drop of almost £8 million resulting from “waiving the final term’s accommodation fees in 2019-20 as students returned home during the national lockdown”.
Karen Stanton, who took over as Solent vice-chancellor just as the pandemic hit a year ago, said the university had “like others in the sector” felt the impact of the pandemic “alongside the challenges of an ever more competitive marketplace”.
“Our banks have been hugely supportive and share our confidence in our underlying financial stability and sustainability,” she said.
The University of Portsmouth, which took out £100 million in private bond financing in 2017-18 to help fund its estates strategy, is another institution to warn in its accounts of a potential breach of lending conditions.
Its accounts warn of the “possibility that the university may breach one of the covenants associated with the private placement at the end of the 2020-21 financial year. Discussions with the lenders are under way to find an appropriate resolution.”
However, Portsmouth – which still posted a surplus last year of £7.7 million – said “several years of returning healthy surplus results, together with some delays to the delivery of the [estates] masterplan mean the university currently holds significant cash balances” and these would be “available to mitigate the impact of a deficit in 2020-21 while continuing to plan for the longer-term future”.
Elsewhere, some research-intensive universities warn that they expect to post a deficit this year amid fears of a significant downturn in income from international students.
They include City, University of London, which says it “may require short-term borrowings to provide a financial buffer against any unanticipated future shocks”, and Cardiff University, which said its “strong balance sheet” would mitigate the “significant operating deficit” it anticipated.
The huge impact of the pandemic on international education was also apparent in the University of Cambridge Group’s accounts, where the income of its examinations arm, Cambridge Assessment, fell by about £100 million because of a drop in “global English language testing activity levels”.
