DBRS Confirms York University at AA (low)

DBRS has today confirmed the Issuer Rating of York University (York or the University) at AA (low), with a Stable trend. York continues to display a solid credit profile supported by conservative fiscal management, growing enrolment and a sound academic reputation. Sizable expendable resources, valuable real estate assets and a continued commitment to cost reduction in 2012-13 add support to the rating.

The University continues to make progress toward returning to a balanced operating position. In 2011-12, York posted an operating deficit of $2.5 million, an improvement over the $3.5 million operating deficit recorded the previous year as revenue growth of 3.7% slightly outstripped 3.5% growth in expenses. The University has reported a moderation of enrolment growth and this is reflected in the 0.9% year-over-year increase in full-time equivalent (FTE) students, the lowest level of growth since 2007-08. Despite restrictions on tuition increases imposed by the Province of Ontario (the Province; rated AA (low)) and modest enrolment growth, tuition and fee revenue rose more than 7%. As is the case with all Canadian universities rated by DBRS, salaries and benefits are the largest expense item. Inflationary cost pressures pushed expenses in this area up 3% year over year due predominately to annual increases in collective agreements.

In light of weaker enrolment trends, York has revised its enrolment planning assumptions downward. This has necessitated a reduced expenditure outlook as well. Cuts of 3.25% had been budgeted for each of 2012-13 and 2013-14. This has now been revised to include a cut of 3.5% in 2013-14 and each of the three following years.

York’s debt burden was reduced by $4.4 million during 2011-12 on account of repayment of term loans. Combined with modest enrolment growth, this has reduced the debt-per-FTE ratio to $6,343, one of the lowest among DBRS-rated universities and appropriate for the rating. However, pension deficiencies have increased markedly and will continue to pressure operating results.

A light debt maturity schedule and a slowly growing number of FTEs should cause the debt burden to gradually decrease in the years ahead. DBRS is not aware of any current plans to add additional debt. The Endowment Fund was flat year over year. The University maintains an internally restricted debt-retirement fund, which stood at $48.6 million as of April 30, 2012, up from $42.7 million the year before. These funds are earmarked to retire a $200 million debenture maturing in 2042 and a $100 million debenture due in 2044. These two debentures represent approximately 98% of the University’s debt. DBRS notes that the debt-retirement fund is not mandated by the terms of the debentures and therefore could be used for other purposes. Notwithstanding this fact, its existence and quantum is an indicator of the University’s conservative, long-term approach to financial matters.

The University has an ambitious capital plan, which includes a new stadium to be built for the 2015 Pan American Games and the new Lassonde School of Engineering. Significant external funding for both projects has been obtained and the University intends to fund its contribution to the capital costs through internal resources. As such, the credit profile should slowly improve over the coming years.

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.