DBRS Confirms Simon Fraser University at AA (low), Stable Trend

DBRS has today confirmed the rating of Simon Fraser University (SFU or the University) at AA (low) with a Stable trend. Sound operating performance and a moderate and declining debt level coupled with a solid expendable resource base provide resilience to the credit. SFU posted a consolidated surplus of $52.3 million in 2010-11, down slightly year-over-year, but still higher than budgeted and solid relative to its peers. Total revenues rose by 4.3% in 2010-11, boosted by a steady increase in ancillary revenues and provincial operating grants, as well as healthy growth in donation and tuition revenues. The latter was driven by increased international student growth, and overall enrolment growth of 2.2%. Overall expenditures grew by 5.2%, on account of higher salary and benefit costs (mainly due to progression through the ranks), as well as increased expenditure on maintenance, repairs and rentals, and utilities. Total debt decreased to $167.1 million at the end of F2011, due to principal reduction. Helped by solid enrolment growth over the year, SFU’s debt burden fell to a relatively low $6,556 per full-time equivalent (FTE) from $6,829 per FTE a year earlier. The University also benefited from the continued recovery in financial markets, as endowment assets rose by 12.3% year-over-year to $209 million, or $8,183 on an FTE basis.

Going forward, continued enrolment strength, particularly from international students, cost-containment efforts, fundraising and land development will help support the operating position. For 2011-12, SFU projects a balanced budget, with both revenue and expenses forecast to grow by 3.1%. However, provincial funding will likely remain soft, and may not fully fund growth in the system, as has been the case for two years now, which would compound the impact of ongoing inflationary pressures. Furthermore, labour costs could also put additional pressure on operations, as a series of labour agreements are set to expire in 2011-12, including the agreement with the Faculty Association, and others are already under negotiation. The University benefited from the Province of British Columbia’s (the Province; rated AA (high) by DBRS) two-year salary freeze in previous contract talks; however, there is some uncertainty as to whether this policy will remain in place. In addition, a recent actuarial valuation of the administration/union staff pension plan revealed large growth in the plan’s solvency deficit position. Though the level is still below that of many of its peers, prudent management will continue be required to tame rising labour cost pressures.

Debt is projected to continue to decline with amortization, partly due to the Province’s constraint on university borrowing, but also because SFU has limited immediate debt financing needs, as capacity added in recent years has provided sufficient flexibility for continued growth in the near term. That said, the University is facing rising deferred maintenance needs, and there is also the potential to undertake public-private partnerships for new residence projects, which would add to the debt ratios as calculated by DBRS. Any amounts would likely be modest, but along with a rising pension solvency deficit and employee future benefits, could pressure financial ratios if combined with a tighter operating environment, although the sound metrics maintained by the University over the years provide meaningful flexibility at the current rating level.

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.