DBRS Upgrades UQAM to A (low), Stable Trend

DBRS has today upgraded the rating of the Université du Québec à Montréal (UQAM or the University) to A (low) from BBB (high). The trend is Stable. The rating upgrade reflects cancelation of the Îlot Voyageur project and the retirement of $269 million of associated debt in November 2010, as well as the continuing recovery in the University’s operating position. The termination of the University’s involvement with the project and the repayment of its associated debt burden have removed much of the negative pressure and uncertainty surrounding the credit profile and will lead to a strong rebound in its financial metrics for FY 2010-2011. However, DBRS notes that improvements in the University’s financial situation so far have been principally the result of extraordinary assistance from the Province of Québec (the Province; rated A (high) by DBRS). Going forward, UQAM will be responsible for the measures necessary to return to a balanced budget, although it expects to run operating deficits for at least the next few years.

For FY 2009-2010, enrolment was up 0.3%, slightly better than expected although below most other DBRS-rated Canadian universities for the comparable period. Revenues were up 7.4%, mainly attributable to higher operating grants to the sector from the Province and the federal government. Expenses before extraordinary items increased by 6.1%, indicative of higher salaries, but this rise was offset somewhat by lower interest costs and lower administrative costs. The University had a recurring net loss of $2.4 million, leading to an interest coverage ratio of 2.0 times, while debt per full-time equivalent (FTE) increased slightly to roughly $17,400.

For FY 2010-2011, enrolment also outpaced UQAM’s expectations, at roughly 5%, versus the less than 1% that had been forecast. As a result of the retirement of the Îlot Voyageur debt by the Province, debt per FTE is expected to drop to about $4,945, which compares well with other DBRS-rated Canadian universities in the “A” category. Interest coverage is expected to improve to better than 5.0 times, also reflective of the debt reduction and fairly strong for the category.

The 2011-2012 provincial budget introduced the Québec University Funding Plan, which will increase funding for universities in the province by $850 million between 2011 and 2017, including an estimated $430 million coming from the provincial government. The plan also envisions increases in donations from individuals in businesses, tuition increases of $325 per year, and growth in other revenue sources such as private research contracts and continuing education. The Québec University Funding Plan marks the first major funding initiative in the province since 2006 and should help UQAM to better keep pace with inflationary increases. The plan assumes tuition increasing at a compound annual growth rate of 5.4% between 2010-11 and 2016-17, although in 2016-17 tuition fees are expected to continue to account for 17% of university revenues, below that of other Canadian provinces.

Note:
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.