DBRS Downgrades University of Windsor to “A”, Trend Now Stable

DBRS has today downgraded the ratings of the University of Windsor (Windsor or the University) to “A” and changed the trend from Negative to Stable. The downgrade is a result of financing needs associated with a capital plan that could push debt per full-time equivalent (FTE) to approximately $10,250 by the end of the fiscal year and see the University’s debt burden grow by over 75% to $10,600 per FTE by 2015. When this higher debt burden is considered alongside uncertainty with regard to the success of the University’s new enrolment plan and a string of consolidated deficits, the previous rating of A (high) is no longer appropriate.

For the year ending April 30, 2012, the University posted a consolidated deficit of $7.6 million, its fifth consecutive shortfall. Enrolment was up, albeit very slightly, to stand at 14,043 in September 2011. Combined with fee increases, this allowed tuition and fee revenue to climb a significant 8.0%, with total operating revenue up 3.7%. Total operating expenditure rose by 3.0%, with salaries and benefits the main drivers. Marginally higher enrolment and a slight decrease in debt allowed debt per FTE to fall to $6,709.

Fiscal year 2012-13 will see a continuation of the University’s realignment exercise for a fifth consecutive year. Faculties and departments will be expected to find $4.2 million, or 2% of the 2011-12 base budget, in savings. Student numbers for September 2012 show more robust enrolment growth of 2.0%, with FTEs standing at 14,320. Current indications suggest that tuition fee revenue may be slightly below budget projections, with better-than-expected investment income and savings on utilities providing an offset.

Enrolment remains one of the biggest challenges facing Windsor. Cognizant of this fact, the University has developed an enrolment plan to grow FTEs to approximately 15,450 by 2015. The capital plan is rightly seen as part of the enrolment strategy as newer, more attractive learning environments are thought to help recruit and retain students and improve the student experience. The capital plan will proceed in two phases, with Phase I expected to be completed by 2015 at a cost of approximately $230 million (including the Centre for Engineering Innovation, which opened in September 2012). In addition to government support, fundraising and the use of proceeds from a previous debt issue, it is expected that the University will require $72 million in external financing for the estimated $118 million remaining cost of Phase I. The University has obtained bank financing for this amount. Draws on the facility will begin before the end of the current fiscal year, with the expectation that the facility will be fully drawn during 2014-15. If the University’s enrolment targets through 2015 are met, DBRS estimates that debt per FTE would climb to $10,600. Enrolment growth on a more historical level would push debt per FTE over $11,000. DBRS believes that an increased debt burden together with a difficult operating environment and uncertainty around the successful implementation of the enrolment strategy, has resulted in Windsor displaying a credit profile more consistent with that of universities rated “A” by DBRS.

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.