DBRS Confirms University of Guelph at “A,” Stable Trend

DBRS Limited (DBRS) has today confirmed the Issuer Rating and Senior Unsecured Debt rating of the University of Guelph (Guelph or the University) at “A.” The trends on both ratings are Stable, supported by improved operating performance, growing endowment assets and a debt burden expected to be nearing its peak. However, amid a constrained provincial funding environment, flat enrolment outlook and the continuation of rising pension funding obligations, there is limited room within existing ratings for any material deterioration in operating performance or increased leverage, beyond that already identified.

In 2013–2014, after adjusting for unrealized gains and losses on interest rate swaps, Guelph recorded a surplus of $64.4 million, or 8.7% of revenues, up from a restated surplus of $45.7 million in 2012–2013. Total revenues grew by 2.7%, driven by a combination of higher tuition receipts and strong investment returns, while enrolment declined by almost 100 FTEs. Expenditure growth was relatively flat as lower salary and benefit costs were offset by increases in operating and utilities expenses. Guelph is currently in the third year of its latest multi-year plan covering the 2012–2017 period, which entails finding $25.4 million in new revenue measures or expenditure reductions. This marks an improvement from the $32.4 million gap originally identified, and is attributable to better revenues due to a favourable shift in program mix that is expected to persist. In addition, following the recent pension valuation and renewal of all labour agreements, Guelph has achieved some near-term cost certainty, which provides comfort that the expenditure targets are achievable. However, revenue growth is expected to remain constrained, reflecting the University’s projections for no enrolment growth and ongoing fiscal restraint at the provincial level. Thus, considerable fiscal discipline will be required to ensure adherence to fiscal targets.

Total debt grew by $9.8 million, or 4.4%, in 2013–2014. When combined with a slight decline in enrolment, this boosted debt per FTE to $10,906, up from $10,403 the previous year − the third-highest debt burden among DBRS-rated universities. Based on expectations that enrolment will remain flat, and the University’s current capital plan, which points to approximately $70 million in additional borrowing, debt per FTE is expected to reach approximately $13,200 in 2016–2017. This level is largely consistent with DBRS’s expectations at the time of last year’s review, but will continue to represent one of the highest debt burdens among all DBRS-rated universities.

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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