DBRS Confirms Concordia University at “A,” 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. The ratings are based on Concordia’s solid position as a leading institution in the Province of Québec (the Province; rated A (high)), manageable debt burden and high level of provincial support. DBRS notes, however, that the funding environment and tuition framework for universities in the Province have become increasingly constrained, resulting in cost pressures exceeding revenue growth. Although Concordia has taken proactive measures to ensure sustainability, recent deterioration in operating performance suggests that further expenditure restraint will likely be needed to restore structural balance. Capital-related debt needs are growing and could absorb much of the flexibility in the rating should projects materialize in line with budget assumptions, absent greater provincial support.

In 2012-2013, Concordia recorded a significant consolidated deficit of $44.2 million, a noteworthy deterioration from the prior year’s surplus of $18.7 million. Revenues fell by 2.6%, with the most notable year-over-year variances relating to declining operating grants as the Province introduced funding compression, combined with a decline in net donation revenues. Enrolment grew by 1.9% to 27,846 full-time equivalent students (FTEs). Expenses grew 10.5% year over year, with a sizable increase in pension costs far exceeding more moderate inflation of teaching, administration and research expenses.

The operating environment is expected to remain weak, as the Province has made funding compression announced in 2012-2013 permanent. Despite partial compensation from the Province for the cancellation of planned tuition fee increases and limited reinvestment in the sector, DBRS expects funding to remain below inflationary pressures for the foreseeable future. Concordia has taken steps to curtail spending, but further strategies may be needed should deficits persist. Break-even results are currently anticipated in 2013-2014, with a modest Operating Fund deficit of $2.7 million expected in 2014-2015; however, results could be meaningfully weaker on a consolidated accounting basis.

University-supported debt per FTE grew by 6.4% to $8,514 in 2012-2013, while interest coverage fell to 3.3 times from 5.5 times. The balance of sale of the Grey Nuns property acquisition and renovation, arena expansion and ongoing IT systems work likely pushed debt close to or slightly above $10,000 per FTE in 2013-2014. Into fiscal 2015-2016, debt per FTE could reach as high as $12,000 as approved capital budget spending, sizable deferred maintenance outlays and changes to the government’s funding formula necessitate increased reliance on the bank line of credit. When combined with a tight operating environment, this has the potential to pressure the rating. DBRS expects, however, that actual capital spending will be lower than assumed in the budget based on historical experience and the status of proposed projects, resulting in a more manageable debt burden.

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

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

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 (October 2012), which can be found on our website under Methodologies.