DBRS Confirms York University at AA (low)

DBRS has today confirmed the Senior Unsecured Debentures of York University (York or the University) at AA (low), with a Stable trend. York continues to display a sound credit profile supported by conservative fiscal management, growing enrolment and a solid academic reputation. Significant expendable financial resources and a commitment to cost reduction in 2011-12 add further support to the rating.

In 2010-11, York posted an operating deficit of $3.5 million, an improvement over the $4.4 million operating deficit the previous year. The University continues to benefit from undergraduate and graduate enrolment growth, with total full-time equivalent (FTE) students up 2.7% over the previous year. Combined with fee increases, the greater number of students allowed tuition and fee revenue to rise more than 9%. Given the restrictions on tuition increases imposed by the Province of Ontario (the Province, rated AA (low) by DBRS), increasing enrolment is one of the few options available to universities in the Province to boost revenues. As is the case across the sector, York continued to experience inflationary cost pressures, especially with respect to salaries and benefits. Salaries were generally 3% higher in 2010-11 than in 2009-10 due to annual increases in collective agreements. To address these pressures, budget cuts of 2.25% are planned for 2011-12, with a further 3.25% cut on the books for each of the two years that follow.

After incorporating a reduction in debt of $4.2 million on account of the repayment of term loans in 2010-11, York’s debt-to-FTE ratio has decreased to $6,492, one of the lowest among DBRS-rated universities and comfortable for the rating. Modest principal repayments and a slowly growing number of FTEs should cause the debt burden to slowly decrease in the years ahead. Sizable endowment assets grew by more than 13% over the previous year. The University also maintains a sinking fund, which stood at $42.7 million as of April 30, 2011, lending further support to the rating.

The University has been successful in opening additional student space that will allow further enrolment growth. Recently completed capital projects include the Life Sciences building and the extension of Osgoode Hall. Both of these projects came in on time and on budget and have created additional student space, a necessity if enrolment is to continue to grow as projected and the University is to be successful in its attempts to diversify program offerings. A major project is now being planned to construct a new engineering building, with an estimated cost of $80 million to $85 million. However, with a funding commitment already in hand from the Province, no new debt needs are anticipated in connection with the project.

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.