DBRS Confirms the University of Windsor Ratings at “A,” with Stable Trends

DBRS has today confirmed the Issuer Rating and Senior Unsecured Debentures rating of the University of Windsor (Windsor or the University) at “A,” both with Stable trends, supported by an encouraging enrolment picture and sustained fiscal prudence. Consolidated results improved in 2012-13, with a $4.9 million surplus reported by the University. However, DBRS makes adjustments to exclude the losses from the remeasurement of employee benefits ($2.0 million) resulting from the adoption of new accounting standards, as well as unrealized losses on swaps ($1.7 million). This translates into an adjusted surplus of $8.6 million, or 2.7% of revenues for 2012-13, as total revenues grew by 3.0%, outpacing spending growth of just 0.2%. A third consecutive year of enrolment growth contributed to the improving results, suggesting that the University may have turned the corner after years of stagnant enrolment. Particular strength is being exhibited in the international student cohort, and further efforts are being made to bolster recruitment of these students to offset some weakness in domestic enrolment, especially as these students remain outside of the Province’s tuition fee framework. Labour expenses declined in 2012-13, owing to continued budget realignment efforts. The sound operating results led to an increase in the interest coverage ratio to 4.1 times, while solid financial market performance boosted endowment assets to $70.9 million, its highest level on record.

In light of its enrolment challenges, the University has initiated an ambitious enrolment strategy focused on recruitment, retention and the overall student experience. The ongoing $230 million Capital Transformation Plan (CTP) is seen as a key part of this initiative and will result in a large scale reconfiguration of the campus footprint and the addition of a downtown campus. More than half of the projects identified for Phase 1 of the CTP have now been completed, with the remainder expected to be largely wrapped up by 2015-16. In support of the CTP, the University secured a $72.1 million bank facility in 2012-13, of which $28.7 million was utilized in January 2013. As a result, Windsor’s debt burden jumped to $121.3 million as of April 30, 2013, or $8,426 on a full-time equivalent (FTE) basis, up from $6,706 per FTE in 2011-12. The credit facility is expected to be fully drawn by June 2014, which could see debt-per-FTE peak at roughly $10,800 by 2014-15, a level which DBRS believes leaves the University well placed within the rating category.

A deficit was budgeted for 2013-14, largely because of the change in the tuition framework, which was announced just as the budget was being finalized, and a further decline in operating grants. The University expects to be slightly ahead of budget by fiscal year-end, owing to better-than-expected FTE enrolment growth and cost containment measures. However, initial forecasts suggest even greater fiscal pressures are in store for 2014-15, with a budget shortfall of $5.8 million currently anticipated. Faculties and departments will be asked to find between 2.45% and 2.95% in savings, a seventh straight year of budget realignments. The Faculty Association contract expires in June 2014, and historically costs for this group have outpaced that of other employee groups. DBRS believes management will have to work diligently to contain future increases in order to minimize the impact on an already stretched operating budget, as each marginal dollar of efficiency is becoming more elusive. Management has shown some proficiency at managing within tight constraints in the past. Nevertheless, after years of restraint, should there be underperformance in enrolment or further government funding constraints, increased cost pressures could be particularly challenging for Windsor.

Notes:
All figures are in Canadian dollars unless otherwise noted.

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

The applicable methodology is Rating Public Universities, which can be found on our website under
Methodologies.