DBRS Confirms Simon Fraser University at AA (low), Stable Trends

DBRS has today confirmed the Issuer Rating and Senior Unsecured Debt rating of Simon Fraser University (SFU or the University) at AA (low), both with Stable trends. The ratings are supported by the University’s low debt burden, prudent management framework and track record of sound financial performance. However, constrained provincial funding, sizable deferred maintenance needs and a reliance on international enrolment pose some risks to operating performance going forward.

Amid a tightened operating environment, SFU recorded a fifth consecutive consolidated surplus of $24.6 million, or 3.9% of total revenues, in 2013-14. Total revenues rose by a modest 1.9%, weighed down by a 1.1% decline in provincial operating funding. Even with a slight decline in full time equivalent (FTE) enrolment, tuition receipts increased by 4.0%, bolstered by higher tuition fees set by the University. Spending rose by 3.2%, driven by continued salary and benefit pressures. However, non-labour expenses declined by 3.0% year over year, suggesting that the expense management initiatives adopted by the University are finding some traction. Total debt declined slightly to $159.6 million as of March 31, 2014, because of principal amortization. Despite the softness in enrolment, SFU’s debt burden fell to a moderate $6,000 per FTE, from $6,012 per FTE in 2012-13, a level which is comparable with other similarly rated universities. Debt affordability, as measured by the interest coverage ratio, remained sound at 9.4 times, a healthy level relative to other DBRS-rated universities, and bolstered by the University’s sound operating performance.

The operating environment is expected to remain challenging in fiscal 2014-15 amid salary adjustments, rising deferred maintenance needs and pension-related expenses, which continue to steadily drive up spending while revenue growth remains subdued as a result of cuts to provincial operating funding and limited tuition fee-setting autonomy. SFU’s Board of Governors approved a revised five-year capital plan spanning the period from 2014-15 to 2018-19, focused largely on addressing deferred maintenance needs on the aging Burnaby campus, as well as expansion of the Surrey campus to accommodate future growth. However, aside from some self-funded ancillary projects that are currently underway, most of the capital plan is likely to be deferred until sufficient capital funding from the Province of British Columbia (the Province; rated AA (high)) or partnerships with external parties have been secured. DBRS notes that the Province has placed a moratorium on external indebtedness across the broader public sector. As such, no new borrowing is anticipated for the foreseeable future. DBRS expects SFU’s debt burden to gradually decline over the near term, and, coupled with the sound metrics maintained by the University over the years, this provides considerable flexibility within the current rating level.

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