DBRS Confirms Brock University at “A,” Trend Stable

DBRS has today confirmed the rating of the Senior Unsecured Debentures of Brock University (Brock or the University) at “A” with a Stable trend. Brock continues to perform well as it progresses toward its multi-year operating recovery strategy with enrolment exceeding expectations. However, the likelihood of a notable increase in annual pension contributions may weigh on operating results and limit the improvement in a still-weak interest coverage ratio. In addition, rising debt for capital projects will continue to erode Brock’s low debt advantage relative to other DBRS-rated peers.

Brock’s financial performance improved in 2010-2011, as the University posted a consolidated shortfall of $5.8 million, or 2.2% of revenues. Total revenues were up by 5.0%, as enrolment growth, now in excess of 18,000 full-time equivalents (FTEs), exceeded expectations and helped to boost tuition receipts and provincial grants. Total spending rose by 4.1%, driven by a continued rise in salary and benefit expenses. Brock’s interest coverage ratio improved slightly to 1.3 times, although it remains low in relation to similarly rated peers. For 2011-2012, the operating budget points to a modest shortfall. However, based on the latest fiscal update, revenues are now expected to exceed budget by $2.7 million. Just over half of this year’s revenue increase has been absorbed by spending pressures, while the rest has been held back in a mid-year reserve. If not needed, the reserve could contribute to better-than-expected results at year-end. Brock remains committed to restoring its operating balance, although given the challenging road ahead, this may not occur by 2012-2013 as originally planned. DBRS expects provincial funding growth to remain constrained by the fiscal position of the Province while increased pension funding requirements will add to spending pressures in the years ahead.

Major elements of Brock’s capital plan include construction of the Cairns Family Health and Bioscience Research Complex (CFHBRC), which remains on track for completion in May 2012, and a performing arts building planned for downtown St. Catharines where preliminary design and engineering work has begun. The push to build a new business building is gaining momentum, although Brock has indicated that it will not proceed without a significant contribution from senior government grants.

Total debt rose by 8.1% to $125.0 million in 2010-2011, as Brock began to borrow to finance its portion of the CFHBRC. Enrolment growth helped to limit the impact on debt per FTE, which rose to $6,876, up from $6,568 in 2009-2010. At this level, Brock’s debt burden compares favourably with similarly rated universities, although this advantage will disappear over the next couple of years as borrowing continues to finance capital projects. The debt burden is expected to rise by more than 17.0% in 2011-2012, since Brock borrowed an additional $23.0 million under its bank facility to fund construction of the CFHBRC. Rising enrolment will limit the increase in debt per FTE to a level somewhat below $8,000. Based on very modest enrolment growth and additional financing needs for the performing arts building and a potential new business building, debt per FTE is now expected to peak at around $10,000. Provided fiscal discipline is maintained and the provincial funding environment does not become unduly strained, Brock should have ample flexibility within its current rating to support the planned increase in debt.

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.