DBRS Confirms Université du Québec à Montréal at A (low)

DBRS Limited (DBRS) has today confirmed the Issuer Rating and Senior Unsecured Debentures ratings of the Université du Québec à Montréal (UQÀM or the University) at A (low), both with Stable trends. The confirmations and trends reflect the recent improvement in operating performance and relatively low leverage compared to peers, as well as UQÀM’s standing as a leading institution within the Province of Québec. The ratings remain constrained by the difficult operating environment facing Québec universities, which have had to contend with consecutive and permanent funding reductions, and by limited fee-setting autonomy. Absent a material base of expendable resources, the University also relies on a bank line facility for short-term working capital needs, a situation that reduces financial flexibility and that is likely to persist over the medium term.

Despite an improvement in reported results, the operating environment at UQÀM remained challenging in 2013–14. The University posted a consolidated deficit of $1.8 million, down from $21.5 million the prior year, as higher-than-expected enrolment supported revenue growth of 5.1%, while material salary and benefit savings against initial budget projections held expenditure growth to just 1.5%. The accumulated deficit in the operating fund, covering roughly 80% of total spending, rose by $10.8 million after interfund transfers, under the provincially authorized limit. The fiscal environment has not improved in 2014–15, with a $12.0 million extraordinary transfer from the capital fund to current operations required to meet targets established in the Plan to Restore Fiscal Equilibrium. The University was forced to absorb the second half of a grant funding reduction introduced in 2012–13 totalling $6.2 million, in addition to further cuts introduced mid-year. An even larger structural budget gap of $20.6 million exists in 2015–16 that will require significant internal realignments to return to balance, with proposed measures focused largely on containing salaries and benefits.

UQÀM’s debt burden remains manageable and relatively low in comparison with similarly rated peers, with University-supported debt totalling $180.0 million, or $6,382 per full-time equivalent (FTE) student at year-end 2014. Debt per FTE declined by 3.7% year over year, as increased draws on the bank facility were offset by notable growth in enrolment of 6.4%. Interest charges supported by the University in relation to total expenditure remained stable at 2.1%, and interest coverage improved to 4.3 times, considered very comfortable for the rating. Should operating funding continue to be constrained or fall below expectations in the years ahead, reliance on the bank line facility for short-term operating needs may become more pronounced, thus increasing the University-supported debt burden. Nevertheless, UQÀM’s capital plan remains modest and largely focused on maintenance with no major construction activities anticipated, limiting the growth in capital related debt 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.