DBRS Confirms Université du Québec à Montréal at A (low), Stable Trend

DBRS Limited (DBRS) has today confirmed the Issuer Rating of the Université du Québec à Montréal (UQAM or the University) and the rating of its Senior Unsecured Debentures (Debentures), both at A (low) with Stable trends. The ratings are supported by the relatively low debt load of the University in relation to its peers and its standing as a respected institution in the Province of Québec (the Province, rated A (high)). This is somewhat tempered by the recently announced tuition freeze and uncertainties surrounding the provincial funding envelope, although taken as a whole, DBRS views the credit as well positioned within the rating category. However, while the Québec government has indicated that it intends to work with universities to ensure their continued viability, DBRS expects that UQAM could become increasingly dependent on its bank facility to pay for unbudgeted items or to make up for funding gaps. This will likely preclude any meaningful reduction in University-supported debt and could delay the timing of UQAM’s return to balance.

The tuition freeze, brought forward by the recently elected government in its fall budget, repealed a tuition increase previously legislated for several university programs. The tuition freeze is in response to widespread and lengthy student protests that took place earlier in 2012 at several post-secondary institutions throughout the Province. UQAM estimates that it has incurred roughly $20 million in lost revenue and additional costs, such as security, including $8 million as a result of the cancelled tuition increase. The University has notified the Ministère de l’Enseignement supérieure, de la Recherche, de la Science et de la Technologie (the Ministry) concerning the costs of the strike and foregone tuition revenues, and has also stated that its plan to return to a balanced budget by 2016 is in doubt as a result.

Funding for future years is to be discussed at an education summit, announced for February 2013. While the government plans to propose indexing tuition fees to the rate of inflation at the summit, the ultimate mechanism for tuition fee increases, if any, is not yet known. Tuition fees for international and out-of-Province students have not been frozen, although past increases have generally been relatively modest.

The fall budget contained no major changes to university funding, pending the outcome of the education summit. The education summit is expected to determine the compensation mechanism, if any, that the government will employ to compensate universities for lost tuition revenues, as well any other changes to funding methods.

As a result of advances in enrolment and good cost control, UQAM completed the 2011-12 year with a modest surplus. Enrolment growth for 2011-12 was 10% above the recovery plan target, at close to 2.8%. Revenues were up across nearly all line items, although comparisons were not unexpectedly more favourable, given the 12 months of receipts captured during F2011-2012 versus the 11 months of F2010-2011. Wage costs were generally in line with the recovery plan, with provisions also made to address salary equity initiatives. UQAM completed the 2011-12 year with University-supported debt totalling $157.2 million, or $5,152 per full-time equivalent, which is up slightly year-over-year but down significantly from prior-year levels due to last year’s elimination of the liabilities associated with the Îlot Voyageur project.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

The applicable methodology is Rating Public Universities, which can be found on our website under Methodologies.