DBRS Confirms Simon Fraser University at AA (low), Stable Trends

DBRS has today confirmed the Issuer Rating and the Senior Unsecured Debt rating of Simon Fraser University (SFU or the University) at AA (low), both with Stable trends. The ratings are supported by the University’s low and declining debt burden, solid expendable resource base and prudent management framework culminating in a track record of sound financial performance. Although constrained provincial funding, sizable deferred maintenance needs and reliance on international enrolment pose some challenges.

SFU recorded a robust consolidated surplus of $65.6 million or 10% of revenues in 2011-12, well above the five-year average, as revenue growth outstripped increases in expenditures. Revenues rose by 3.6%, supported by stronger-than-expected enrolment growth, particularly from international students, stable tuition fee increases, research revenues, investment income and donations. Prudent management of expenses helped keep expenditure growth to a subdued 1.5%, driven by higher labour, student aid and administrative expenses. A balanced budget was prepared for 2012-13, supported by continued enrolment growth and regulated tuition increases. Government funding has been constrained in recent years, with no funding for growth beyond set targets, restraint on growth in operating grants and cuts to capital renewal funding. A sound enrolment outlook and adherence to disciplined expenditure management should assist the University in maintaining balanced budgets going forward, despite such pressures.

Continued debt amortization helped reduce total debt to $163.6 million in 2011-12, and together with solid enrolment growth, amounted to $6,163 per full-time equivalent (FTE), a manageable level relative to peers. Debt affordability as measured by interest coverage improved to a robust 13.3 times. Financial resources improved during the year as endowments grew by 12.7% to $235 million, or $8,851 per FTE. Expendable resources comprising internal reserves and internally restricted endowment assets stood at a sizable $135.7 million, accounting for 83% of debt, providing financial flexibility to address any near-term challenges.

SFU continues to grapple with a large deferred maintenance backlog and growing unfunded pension liabilities. Along with implementing its new strategic plan, resolving these challenges will be a key priority going forward. An updated five-year capital plan focuses on addressing deferred maintenance needs on the Burnaby campus and developing the Surrey campus to accommodate expected future growth. However, due to the existing provincial moratorium on external debt, no new borrowing needs are expected for the foreseeable future, and the focus will remain on funded projects. As such, DBRS expects that the debt burden will continue to decline over the near term, although a prospective public-private partnership for residence refurbishment and maintenance could eventually add to debt ratios, as calculated by DBRS. Nevertheless, SFU’s financial profile remains resilient, with healthy and growing financial resources and a sound operating track record, providing meaningful flexibility within the current rating.

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.