DBRS Changes Trend on University of Windsor to Negative

DBRS has today confirmed the rating of the University of Windsor (Windsor or the University) at A (high) but changed the trend to Negative from Stable. Windsor’s recently approved capital plan could result in a significant increase in debt over the next two years. The credit profile of the University is expected to be eroded materially by the increase in debt, especially in light of Windsor’s string of consolidated deficits and history of stagnant enrolment.

For the year ended April 30, 2011, the University posted a consolidated deficit of $9.4 million, its fourth consecutive shortfall. The operating budget was balanced, however, with recognition of non-cash future liabilities largely responsible for the deficit. After three years of decline, total enrolment on a full-time equivalent (FTE) basis increased to 14,029 in the fall of 2010. This represents growth of 2.5% year-over-year and, when combined with an almost $9 million dollar decrease in debt outstanding, pushed long-term debt per FTE down to $6,817 – a level which allows some flexibility in the rating.

Fiscal 2011-12 was the final year of the University’s four-year realignment plan and saw a further $4.3 million shaved from the operating budget. Preliminary results for the 2011-12 year just ended suggest that operating revenue came in $1.5 million above budget, mostly on the strength of stronger-than-expected investment income. However, operating expenditures were also above expectations by the same magnitude, resulting in a balanced operating result. Consolidated year-end figures are not yet available. The latest actuarial valuation of the University’s two pension plans was also completed during 2011-12. It indicates that Windsor has below-average exposure to pension liabilities, which have become a growing source of concern in the sector.

Enrolment is perhaps the greatest challenge facing the University. As part of its efforts to grow enrolment through recruitment and retention, Windsor’s board recently approved an ambitious capital plan with an associated price tag of approximately $118 million, not including the soon-to-be-completed $112 million Centre for Engineering Innovation, which has been financed without additional external debt. The plan involves two phases and includes the construction of an International Student Centre, a combined parking facility and innovation centre, and the development of a new campus site in downtown Windsor. Approximately $24 million will be added to the debt burden in 2012-13, which will push the debt burden to approximately $8,500 per FTE, a level that stretches the limit of the current rating. Another $18 million to $20 million of debt is likely to be added in 2013-14, causing debt per FTE to climb to a projected $9,900, a level that would no longer be consistent with the current A (high) rating. DBRS notes that, in estimating its additional debt needs, the University has used very conservative government funding and fundraising assumptions, reducing the risk of an upside revision.

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.