DBRS Confirms Brock University at “A” Stable Trend

DBRS Limited (DBRS) has today confirmed the Issuer Rating and Se¬nior Unsecured Debt rating of Brock University (Brock or the University) at “A”. The trend for all ratings remains Stable, sup¬ported by a steady improvement in operating performance and moderation in debt needs. However, demographic headwinds and an increasingly competitive environment for new students, combined with a constrained provincial funding situation, pro¬vides limited upside to the ratings.

In 2013-2014, Brock reported a consolidated surplus of $6.6 mil¬lion, although DBRS makes adjustments to exclude gains and losses from the remeasurement of pension and benefit obliga¬tions from reported results. This results in an adjusted surplus of $3.9 million, or 1.3% of revenues, marking an improvement from the 0.8% shortfall recorded a year earlier and the first operating surplus in seven years. For 2014-2015, Brock’s budget points to a balanced fiscal position, after introducing mitigation efforts of $3.2 million or 1.1% of total spending, including a six month hir¬ing delay and reductions in non-essential travel and hospitality expenses. Meanwhile, total revenues are projected to rise by 3.1% in 2014-2015 driven by a combination of increased tuition fees and modest enrolment growth. Over the medium term, DBRS anticipates that Brock will strive for a balanced fiscal position, although to do so will require some difficult decisions. Brock will be affected by provincial changes to teachers’ education which will mean a 50% reduction in admissions for this program begin¬ning in September 2015, and the completion of a new performing arts building that will add to annual operating costs. All of this is expected to take place in an environment of declining enrolment, further exacerbating budgetary pressures. A program review process is underway that continues to look at both academic and non-academic areas and is expected to help guide the allocation of scarce resources once completed.

For the year ended April 30, 2014, total debt declined by $3.6 million, or 2.6%, due to the amortization of existing debt as no new borrowing was undertaken. When combined with higher enrolment, this resulted in a decline in the University’s debt per full-time equivalent (FTE) to $6,913 from $7,314 in 2012-2013. A modest improvement in operating performance helped to insu¬late the University from rising interest charges, boosting interest coverage to 2.4 times, up from 2.3 times a year earlier. Thus far in 2014-2015, Brock has borrowed an additional $18 million to fund development of its new performing arts building. This is consistent with expectations at the time of DBRS’s last review and will bring total debt to $153 million by fiscal year end after accounting for modest principal repayments on existing debt. Based on Brock’s capital plan and a scaled down business build¬ing, no further debt is anticipated through 2018-2019. As a result, debt per FTE is now expected to remain below $8,000 over the medium term, a level considered very manageable within the ex¬isting ratings.

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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