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 formalization of the annual capital grant of $13.5 million (the debenture grant), which provides greater certainty of funding and a marked improvement over past reliance on top-up contributions from the Province of Ontario (the Province, rated AA (low)) on an annual basis. The rating is constrained by the high debt burden, the need to keep the accrual shortfall manageable, as well as the University’s need to accommodate its growing student population given its space constraints and its restrictions on additional indebtedness.

For the fiscal year ending March 31, 2011, revenues greatly exceeded budget, as top-up amounts from previous deficits carried forward led to accrual income of $15.4 million. Going forward, however, the University expects that it will operate closer to a break-even position. The University has begun to incorporate the payment of debenture interest as a budget line item, which DBRS views as a more sustainable approach that should reduce reliance upon its line of credit to fund operating shortfalls. As required under an agreement with the Province, the operating budget remains balanced for 2011, with the help of higher enrolment, continued spending containment and some targeted cost-cutting measures.

In 2012, the University opened the Automotive Centre for Excellence research facility and the Nuclear Research Centre on the north campus, as well as a number of buildings on the south campus, which has created space for approximately 1,750 students. These projects were undertaken without any additional debt, although UOIT entered into a number of capital leases, which DBRS considers as debt for the purposes of ratio calculation. To satisfy the provisions of the additional indebtedness covenant in its trust indenture, a $28 million loan was deposited with the debenture Trustee.

The loan that was received from the Ontario Financing Authority (OFA) is to be paid back over the next five years. The new $13.5 million debenture grant and the additional funds from the OFA are evidence of a strong level of support from the Province. Nevertheless, DBRS notes that pressure on the capital program to keep pace with enrolment growth persists, without incurring additional indebtedness or capital leases. The University will be forced to manage within this constraint – a task that is expected to be difficult, considering space needs.

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.