DBRS Confirms UOIT at BBB (high), Stable Trend

DBRS has today confirmed the long-term rating of the University of Ontario Institute of Technology (UOIT or the University) at BBB (high). The trend remains Stable, supported by the expectation that the new annual capital grant will soon be formalized, which provides greater certainty of funding and which is a marked improvement over past reliance on top-up contributions from the Province of Ontario (the Province) on an ad hoc basis. The rating is balanced by the need to keep the accrual shortfall manageable, as well as the University’s need to expand its infrastructure to accommodate its growing student population.

For the fiscal year ending March 31, 2010, revenues slightly exceeded budget and the deficit of $1.7 million was comparable with the $1.5 million shortfall posted the year before, reflective of solid enrolment growth. As required under an agreement with the Province, the operating budget remains balanced for 2011, with the help of higher tuition fees and enrolment and continued spending containment. However, the budget continues to exclude amortization and debenture interest expenses and certain related revenues. This is expected to translate into an accrual shortfall of approximately $3.0 million, after incorporating the formalization of $13.5 million in top-up funding announced by the Province in January 2011, which is to be allocated to servicing the Series A debentures. This provides valuable budget relief and removes a significant amount of pressure from the rating, particularly in light of space constraints at the north campus, which are expected to cause sizeable expansion requirements, and the continued development of the south campus.

On the north campus, work continues on the Automotive Centre for Excellence research facility and the Energy Systems and Nuclear Research Centre, with the completion of each projected for this summer, while activity on the south campus has been focused on the Alger Press Building. In accordance with debenture covenants, no new debt is currently permitted and all new projects continue to be funded with grants, donations and operating cash flows. Furthermore, the University has entered into long-term leases for the provision of additional space at the south campus. Therefore, UOIT’s high debt burden should continue on a slow downward trend in the years ahead. However, no material increase in interest coverage is expected in the foreseeable future and improvement in financial flexibility may be slowed by funding requirements pertaining to the long-term leases.

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.