DBRS Confirms University of Ottawa at AA

DBRS has today confirmed the rating on the Senior Unsecured Debt of the University of Ottawa (uOttawa or the University) at AA with a Stable trend. Despite tight funding conditions and rapidly growing unfunded pension liabilities across the sector, uOttawa maintains a sound credit profile, thanks to conservative management and budgeting practices, rising enrolment and continued restraint over debt use.

The University ended 2009-10 with a consolidated surplus of $44.6 million, which was a considerable improvement from the prior year. The performance primarily reflected enrolment growth of 4.9% on a full-time equivalent (FTE) basis, moderate tuition increases, savings from the resource optimization exercise initiated the prior year, as well as a marked rebound in investment income, which helped offset a modest deficit in the operating fund. Capital investments undertaken during the year were sizeable but fully funded with internal reserves and government grants. This helped keep debt stable at $201 million, or $4,997 per FTE, at April 30, 2010, which is one of the lowest levels in the sector. Interest coverage rebounded in 2009-10 to a more normal 6.1 times in the absence of new borrowing and improved operating results. Similar to many other DBRS-rated universities, however, unfunded pension liabilities more than doubled during the year to $145 million due to a downward revision in the discount rate.

The operating fund budget remains balanced for 2010-11, based on expected enrolment growth of about 3% and an average tuition fee increase of 4.3%. However, operating conditions will remain tight in the years ahead, as reflected in the small deficits foreseen by the University over the next two years. Provincial funding growth is likely to continue to lag spending while rising pension contributions, a growing labour force and compensation adjustments will keep expenses on a steady upward trend. No new debt is anticipated for at least the next two years, which should foster stability in the credit profile. However, the next five-year capital plan (expected to be finalized in the coming months) is likely to identify new projects that may require external financing. DBRS notes that the University has some flexibility within its current rating to increase leverage, though not to the $10,000 per FTE limit set under its debt management policy.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The applicable methodology is Rating Canadian Universities, which can be found on our website under Methodologies.