CAUBO Winnipeg, June 17, 2008 Presentation by Lucie Mercier-Gauthier Debt Capacity

Debt capacity - CAUBO June Objective and Process How do we finance a large number of capital needs? Currently have over $200 million in debt, including a $150 million bond Provided some internal analysis. Board is debt adverse Decided to do an RFP to find a consultant to help determine our debt capacity and to help us develop a capital financing plan for another $150 million capital plan Selected an American consulting firm Prager, Sealy & Co.

Debt capacity - CAUBO June Methodology Achieving financial goals through total balance sheet management Articulate expected long-term and short term investment returns Determine amount of liquidity required/desired then invest unused portion View total assets & total liabilities as ‘portfolios’ Establish process & timeline for analyzing and implementing proposed strategies Determine appropriate financing sources for projects on University-wide basis Compare actual and / or opportunity cost of spending internal vs. using external funds.

Debt capacity - CAUBO June Analysis Analysis of the last 5 years financial statements Development of three different sets of assumptions (basic, most probable, worst case) for major revenues and expenses 5 year forecast and testing of these scenarios Impact of these scenarios on our debt capacity and ratios Development of sensitivity analysis (what if scenarios) Development of a liability management policy

Debt capacity - CAUBO June Major Assumptions $150M new 5-year capital plan Internally finance $75 M and externally borrow $75 M Invest part of operating cash in a long-term investment strategy Assumptions for major revenue and expenses Maintain future debt capacity

Debt capacity - CAUBO June Proposed Ratio Limits DescriptionObjective Proposed limits 2007 (Actual) 2012 (Forecast) Debt-to-FTE Measure resources per student allocated to debt. Indicator of resource allocation < $ $ 5 832$ Unrestricted Liquidity-to- Debt (Balance Sheet) Measure assets relative to liabilities. Indicator of the overall financial health > 0.5 x1.18 x Interest Coverage (Statement of Operations) Measure ability of the University to cover interest expense with operating surplus. Indicator of debt affordability > 2.5 x8.91 x3.80 x

Debt capacity - CAUBO June Three Monitoring Ratios (continued) Why choose these indicators Industry standard – key determinants for credit agencies Easily calculated – elements found in higher education reports, enabling direct comparison and benchmarking Simplification – to assist both Management and Governing bodies in reviewing and making policy decisions Establishing thresholds Established from the median leverage levels in AA category in both Canada and U.S.

Debt capacity - CAUBO June If the Ratios Go Offside Process and Remedies 1.5 year forecast refreshed on an annual basis, so we can plan for deviation 2.If two out of the three ratios go to: Debt-to-FTE over $ (maximum upper limit $ ) Unrestricted liquidity-to-debt: under 0.6 (threshold 0.5) Interest coverage: under 3.00 (threshold 2.50) Yellow flag Under management review Policy Management Debt-to-FTE$ $ Liquidity-to-debt ratio 0.5 x 0.6 x Interest coverage ratio 2.5 x 3.0 x 3.If necessary, action plan to rectify the pending situation (reduction of operational expenses, delay or scale down projects, etc.)

Debt capacity - CAUBO June Sensitivity Analysis DescriptionForecastThreshold RatioValue (millions of $) RatioValue (millions of $) Debt-to-FTE$ 7 433$ 272$ $ 366 Unrestricted Liquidity-to-Debt (Balance Sheet) 1.18 x$ 320> 0.5 x$ 136 Interest Coverage (Statement of Operations) 3.80 x$ 17> 2.50 X$ 2

Debt capacity - CAUBO June Sensitivity Analysis (continued) Fluctuation of 0.2 x will be produced by: –Liquidity-to-Debt: fluctuation of $ 60 M in net assets –Interest Coverage: ▪Fluctuation of $ 5 M in revenues or expenses ▪ Fluctuation of $ 1.5 M in interest expenses Conclusion: Interest Coverage ratio has a greater risk of fluctuation

Debt capacity - CAUBO June Annual Review Internally: –Review assumptions for 5-year forecast and refresh analysis –Forecast ratios –Review sensitivity analysis –Review capacity to finance debt from operations –Determine need for debt Presented and reviewed annually by the Treasury Committee Any decision to borrow externally must be approved by the Board of Governors All capital projects are approved by the Board of Governors

Debt capacity - CAUBO June Presentation to DBRS and Moody’s Presentation to DBRS and Moody’s to present: –The $150 million Five-Year Facilities Renewal and Expansion Plan –The new proposed Liability Management Policy –The Governance Structure for Capital Plans and Borrowing Both DBRS (AA) and Moody’s (Aa2) support our strategy –Support the new liability management policy –Viewed as good discipline –Confirmed our credit ratings