DBRS Confirms University of Windsor at “A”

DBRS Limited (DBRS) has confirmed the Issuer Rating and Senior Unsecured Debentures rating of the University of Windsor (Windsor or the University) at “A,” both with Stable trends. The trends are supported by prudent financial management practices that have helped to sustain fiscal discipline. Financing associated with the five-year Capital Transformation Plan (CTP) will push leverage to a peak of nearly 70% higher than prior levels. The debt burden is manageable for the current rating and there are no current plans for additional borrowing. Constraining the ratings are the challenging enrolment outlook for the University and the tight provincial funding environment, both of which aggravate the task of addressing persistent annual cost pressures.

In 2013–14, the University reported a consolidated surplus of $3.8 million. After removing non-recurring items and employee benefit remeasurements, Windsor posted a DBRS-adjusted surplus of $7.7 million, down slightly from $8.6 million the prior year. Operating revenues grew by 4.8%, supported by encouraging growth in full time equivalent (FTE) enrolment of 2.5%, but this was outpaced by expenditure growth of 5.2%, driven by rising salary and benefit charges. The University expects to close the current fiscal year in balance. The budget includes the eighth consecutive budget realignment exercise totalling $5.8 million. In 2014–15, FTE enrolment declined by 1.5%, with losses concentrated primarily in the Faculty of Arts, Humanities and Social Sciences (FAHSS), resulting in a projected $1.1 million negative tuition variance. Domestic enrolment weakness was partially offset by stronger admissions into international course-based master’s programs, an area of great focus in recent years.

For greater consistency across the sector, Windsor’s FTE enrolment figures are now presented on a standard credit load basis, rather than a previous Statistics Canada formula. This resulted in a one-time downward adjustment of the University’s debt burden in 2013–14 to $9,842 per FTE in 2013–14, from $10,310 under the previous method. In 2013–14, an additional draw of $33.0 million was made on a bank credit facility to fund the capital plan, a key component of a comprehensive enrolment and retention strategy, resulting in net debt reaching a high of $152.1 million. On a restated basis, debt per FTE rose to $9,842 in 2013–14, from $8,040 the prior year. The final draw on the facility in 2015 is expected to push leverage to a peak of approximately $10,500 per FTE, slightly above expectations at the time of the last review.

DBRS is not aware of plans for additional external financing and notes that the projected peak in leverage will place Windsor well within the rating, with some flexibility should enrolment fall short of expectations. DBRS believes that considerable fiscal discipline will be required to adhere to future budget targets, as marginal efficiency savings becomes increasingly difficult after years of realignment. Continued enrolment underperformance and further provincial funding cuts are likely to limit material improvement in the credit profile over the medium term.

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.

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

The applicable methodology is Rating Public Universities (June 2014), which can be found on our website under Methodologies.

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