DBRS Confirms Concordia University at “A,” Trend Stable

DBRS has today confirmed both the Issuer Rating and Senior Unsecured Debt rating of Concordia University (Concordia or the University) at “A” with Stable trends. Amidst a challenging operating environment of reduced in-year funding and cancelled tuition increases, the University has taken proactive measures to ensure the continuation of a sustainable operating position while still accommodating rising enrolment. In addition, debt needs are considered to be relatively modest. However, DBRS acknowledges that limited tuition fee flexibility and further funding restraint, combined with rising pension commitments, will require continued discipline to ensure the credit profile remains intact.

For the year ended April 30, 2012, Concordia recorded a consolidated surplus of $20.7 million, or 4.0% of revenues, excluding non-recurring expenditures of $2.0 million. DBRS notes that starting in 2010–2011, the University changed its fiscal year-end to April 30 from May 31 resulting in an 11-month year. As a result, this makes comparisons between 2011–2012 results and the prior year less meaningful. Enrolment was up by 1.7% to 27,323 full-time equivalent students (FTEs), which provided support to revenues while spending increases were relatively modest after accounting for the difference in length between fiscal years. University-supported debt declined by 6.9% representing a debt burden of $8,001 per FTE, down from $8,733 per FTE the prior year. Meanwhile, interest coverage continued to improve to a respectable 5.5 times.

In 2012–2013, subsequent to the initial budget being approved, the election of the Parti Québécois in September 2012 resulted in a cancellation of the previously planned tuition increase. In addition, the Province of Québec (rated A (high) with a Stable trend by DBRS) announced in December 2012 that the operating grants to universities for the 2012–2013 academic year would be reduced, negatively affecting Concordia’s revenues by $13.2 million. To mitigate the impact of lower-than-planned revenues, the University has taken steps to curtail spending by eliminating vacant positions, delaying spending where possible and through the use of reserves. As a result, the University now anticipates a deficit of $7.5 million for the current fiscal year. A revised tuition framework has since been introduced, although reductions in operating grants are expected to carry forward into 2013–2014 and, as such, DBRS believes that the continuation of modest deficits cannot be ruled out. DBRS notes that most of Concordia’s major labour groups are without a collective agreement and it often takes years to reach a negotiated settlement — a process that is more drawn out than at other DBRS-rated universities. The University is working to accelerate labour negotiations but it nevertheless adds an element of uncertainty to the fiscal outlook until agreements are concluded. The expectation for rising pension contributions will also add to budgetary challenges.

Providing stability to the credit profile is the expectation that capital projects currently in progress or under consideration will lead to only modest needs for new university-supported debt. As such, debt is expected to remain below $10,000 per FTE through 2013–2014 — a level DBRS considers acceptable for the current ratings.

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.