DBRS Confirms Brock University at “A”, Stable Trend

DBRS has today confirmed the Issuer Rating and Senior Unsecured Debentures rating of Brock University (Brock or the University) at “A”, both with Stable trends. DBRS acknowledges the steady progress Brock has made toward restoring its operating balance through the use of sound budgeting practices and efforts currently underway to grow enrolment. Nevertheless, rising annual pension contributions and a tight funding environment will require continued fiscal discipline. In addition, further debt-financed capital projects, while considered manageable, will limit improvement in the credit profile over the near term.

Brock continues on its path of restoring fiscal sustainability, recording a consolidated deficit of $2.3 million in 2011-2012. This equates to less than 1.0% of revenues and marks a modest improvement from the prior-year shortfall. Enrolment growth of 2.7% exceeded expectations and contributed to a 3.7% increase in revenues. Meanwhile, spending remained relatively well contained, up by 2.3% from 2010-2011, marking the slowest rate of growth since at least 2005. Brock had previously planned for a return to balance in 2012-2013. However, as a result of rising pension expenditures, and as anticipated in DBRS’s last review, the University has budgeted for a modest operating shortfall in 2012-2013. Nevertheless, DBRS acknowledges the steps taken by the University to achieve fiscal sustainability, including a requirement for departments to find 2.1% of budgets, on average, in revenue enhancements or additional expenditure savings. Based on the latest fiscal update, enrolment is tracking ahead of plan, suggesting that year-end results should be at least in line with budget, if not somewhat ahead. Although still in development, the 2013-2014 budget is likely to require additional revenue or expenditure measures as Brock strives toward a balanced position.

The University is in the midst of a number of large capital projects that have increased borrowing in recent years. Construction is now underway on a new fine and performing arts facility in downtown St. Catharines. In addition, development of a new building for Brock’s recently named Goodman School of Business, is also under consideration. DBRS expects that the University will seek funding commitments from senior provincial government for a substantial portion of costs for the new business building before proceeding, although additional debt is also likely to be required.

In 2011-2012, total debt grew by 17.6% to $147 million, as additional financing was required to fund construction of the Cairns Family Health and Bioscience Research Complex (CFHBRC). As a result, debt per full-time equivalent (FTE) rose to $7,871 from $6,876 in 2010-2011, which compares favourably with most similarly-rated peers. Consistent with better operating results, Brock’s interest coverage ratio improved to 2.2 times from just 1.3 times a year earlier, a level considered more acceptable for the current rating. For 2012-2013, Brock has already repaid a portion of its bank facility used to finance the CFHBRC from donations received for that purpose. As a result, debt should fall below $7,500 per FTE before rising to approximately $8,000 per FTE in 2013-2014. Should additional debt be required to fund a new business building, this could result in a debt burden of roughly $8,500, based on DBRS’s early estimates. This is a lower peak than what was expected at the time of DBRS’s last review and should be easily manageable within the current rating, provided fiscal management remains sound and the provincial funding environment does not become unduly strained.

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.