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. Despite a constrained provincial funding environment, efforts to restore balance are ongoing and DBRS notes that the University has also taken strides to improve financial transparency. In addition, while debt is expected to grow in the near term, it should remain well within an acceptable range for the current ratings.

Brock reported a consolidated surplus of $8.1 million in 2012-2013. Like other universities, Brock has adopted new accounting standards for not-for-profit organizations and has elected to use the immediate recognition approach for pensions and other employee future benefits. DBRS excludes gains and losses from the remeasurement of pension and benefit obligations, which results in an adjusted deficit of $2.2 million, or a modest 0.8% of revenues. This represents a slight deterioration from the $1.9 million adjusted shortfall recorded in 2011-2012. Total revenues advanced soundly by 5.7%, driven primarily by higher enrolment (3.3%) and increased tuition rates. However, expenditures kept pace with revenues, largely as a result of rising salary and benefit costs. For 2013-2014, a deficit of $7.0 million is anticipated, after targeting $7.5 million in mitigation efforts. Brock plans to achieve a balanced budget in 2014-2015, excluding any accounting adjustments related to the remeasurement of post-employment liabilities. The University is no longer relying on rescission targets, as had been the practice for the past several years, but has now embarked on a comprehensive program review process. This will cover both academic and non-academic areas and, once completed, will guide the allocation of resources over the longer term and help promote financial sustainability.

In 2012-2013, total debt declined by 4.0%, to $141.1 million, consistent with expectations. As a result, debt per FTE fell to $7,314, down from $7,871 in 2011-2012 and compares very favourably with other “A”- rated universities. According to Brock’s capital plan, an additional $17.4 million in debt is required in the coming months for a performing arts building, although this may not occur until 2014-2015. This is expected to boost debt per full-time equivalent (FTE) to approximately $7,800, assuming enrolment growth of 2.9%. Using Brock’s baseline enrolment forecast (less than 1% average annual growth), the debt burden should then resume a downward trend until 2017-2018, when additional borrowing will be required for a business building. This could push debt back towards $8,000 per FTE, although DBRS notes that under its Strategic Management Agreement (SMA) with the Province, Brock is targeting more aggressive enrolment growth, which may result in a somewhat lower debt burden. Should Brock ultimately be successful in executing its growth strategy while also restoring balance and containing debt needs, this could lead to a gradual improvement in the credit 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.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

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