DBRS Confirms Concordia University at “A”, Stable Trend

DBRS Limited (DBRS) has today confirmed both the Issuer Rating and Senior Unsecured Debt rating of Concordia University (Concordia or the University) at “A” with Stable trends. The ratings reflect Concordia’s solid position as a leading English-language university in the Province of Québec (Québec or the Province; rated A (high)) by DBRS), the high level of support from the provincial government, and a manageable medium-term debt outlook. The ratings remain constrained by weak operating performance, limited fee-setting autonomy, and by the challenging operating environment facing all Québec universities following several rounds of funding compression.

Concordia’s fiscal performance improved somewhat in 2013-2014, with the University reporting a consolidated deficit of $18.7 million, compared to $44.2 million the prior year. Encouragingly, revenue growth of 8.6% outpaced that of expenditures, which rose by 3.2%. The most notable areas supporting revenue gains were growth in operating and debt servicing grants from the Province to support higher debt, materially higher donation revenue, and modestly higher tuition receipts stemming from indexation in tuition fees for Québec undergraduate students. Full-time equivalent (FTE) enrolment was largely stable year over year at 0.2%. Expense growth was fairly well-contained as spending on academic services, the largest expense category that includes most faculty teaching costs, rose by just 1.4% year over year, although rising pension costs continue to pressure overall spending.

In 2014–2015, the University expects to post breakeven results in the Operating Fund, less $8.8 million in non-recurring costs associated with a voluntary departure program (VDP) introduced to achieve longer-term labour cost savings. The recent improvement, albeit limited, in operating performance points to the success of measures that have been taken to help restore fiscal balance at Concordia; however, the near-term costs associated with savings initiatives such as the VDP and continued government funding cuts suggest that further expenditure restraint will likely be required. DBRS also notes that reported results in 2014–2015 are likely to be meaningfully weaker on a consolidated accrual basis after capital activities are incorporated.

Debt supported by the University rose by 8.3% or approximately $20 million year over year in 2013–2014, driven by new long-term bank financing associated with the acquisition and renovation of the Grey Nuns Motherhouse for use as student residences. Interest coverage rebounded to a comfortable 5.0 times from 3.3 times the prior year. Debt per FTE student reached approximately $9,200 in 2013–2014, up 8.1% year over year but below expectations at the time of the last review. Leverage is likely to reach just over $10,200 through 2015–2016 based on current planning assumptions, a level deemed to be manageable for the ratings. Further growth in borrowing above current expectations could begin to diminish flexibility in the credit profile and pressure financial risk metrics, especially if operating deficits persist over the forecast horizon.

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.

The full report providing additional analytical detail is available by clicking on the link under Related Research at the right of the screen or by contacting us at info@dbrs.com.