DBRS Confirms UOIT at BBB (high) with Stable Trend

DBRS has today confirmed both the Issuer Rating and Senior Unsecured Debt rating of the University of Ontario Institute of Technology (UOIT or the University) at BBB (high). The trends remain Stable, reflective of a more stable revenue base, growing reputation and strong enrolment trend. The ratings are constrained by the high debt burden, increased tightness in the operating environment, as well as the University’s need to accommodate its growing student population given its space constraints.

UOIT recorded an accrual surplus of $2.7 million, or 1.8% of total revenues, in 2011–12. This was down year-over-year, although prior year’s results were skewed by a sizeable special grant from the Province. Continued enrolment growth helped push total revenues up by 2.2% in 2011–12, while persistent spending pressures led to a robust 12.1% increase in expenditures. As required under an agreement with the Province, the operating budget was balanced for 2012–13 on a modified cash basis. Preliminary indications suggest that UOIT once again posted break-even performance for fiscal year 2012–13, on better-than-expected enrolment growth and continued efforts to contain spending. The University has approved another balanced budget for 2013–14, and expects to introduce a new budget model in the years ahead.

As expected, DBRS-adjusted debt burden rose to $270.4 million in 2011–12, largely due to the $28 million Ontario Financing Authority (OFA) loan. Despite the increased debt level, higher enrolment growth helped push the debt-per-full-time equivalent ratio down to $35,744, although this level remains the highest among DBRS-rated universities. Interest coverage fell to 2.0 times from the high posted in 2010–11. DBRS notes that under the terms of the OFA loan agreement no additional indebtedness or capital leases are permitted until the loan has been repaid, which is expected by 2015–16. As such, DBRS expects a gradual decline in the debt burden over the medium term. The University intends to finance future capital projects through a combination of grants, donations and operating cash flows, and only expects to proceed with projects once at least half of financing has been secured. However, UOIT is currently working with Durham College to develop a shared Campus Master Plan to address capacity concerns, which could eventually require additional debt needs given the UOIT’s limited financial flexibility. The scale and affordability of this plan are currently uncertain. In addition to space concerns and operating pressures associated with sharp enrolment growth in recent years, the University will have to contend with a more restrictive provincial tuition fee framework and constrained funding environment. As such, DBRS believes that continued improvements in internal controls and expenditure management will be required by UOIT to prevent erosion in its financial profile.

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.