DBRS Confirms Wilfrid Laurier University at A (low), Stable Trend

DBRS Limited (DBRS) has confirmed the Issuer Rating and Senior Unsecured Debt rating of Wilfrid Laurier University (Laurier or the University) at A (low) with Stable trends. The ratings are supported by a reasonably solid academic profile, proactive management and a history of strong enrolment growth over the past decade. However, a constrained operating environment for Ontario universities and persistent cost pressures have aggravated efforts to address a structural operating deficit, necessitating the use of reserves and non-recurring measures to achieve a balanced budget position. Moreover, a weaker demographic outlook for the university-age population has contributed to a recent enrolment decline, the key driver of revenue growth.

Laurier reported a DBRS-adjusted surplus of $7.4 million in 2013–2014, up from a restated surplus of $2.9 million the prior year. Revenues grew by a solid 5.1% year over year, supported by growth in full-time equivalent (FTE) enrolment of 3.7%, which led to higher tuition receipts and provincial accessibility grant funding. Expenditures grew by a more moderate 3.7%, driven primarily by spending on salaries and benefits. In 2014–2015, FTE enrolment fell by 1.8%, resulting in a large negative variance on tuition and grant revenues from the original budget. The University will utilize $8.4 million in reserve funds to achieve a balanced operating position, including an enrolment reserve set aside from the prior year.

For 2015–2016, the final operating budget projects an operating fund deficit of $21.1 million. In response, the University identified budget savings of approximately $12.7 million at the departmental and institutional level. After these budget targets, the remaining operating fund deficit is expected to total $8.3 million. Laurier has opted to utilize a number of extraordinary options to produce a balanced result, including the use of an annual operating contingency of $1.6 million and suspension of the inclusion of $6.8 million in non-cash post-employment benefit costs in the budget. The plan also assumes that Laurier will file an updated pension valuation earlier than required, which is expected to meaningfully reduce going-concern special payments. Overall, expenditures are budgeted to grow by 1.0%, while revenues are set to fall by 2.0% year over year, as a further decline in FTE enrolment of 3.2% results in lower tuition and grant funding.

The University’s total debt burden stood at $233.4 million through 2014–2015 following final draws on the bank credit facility. On a per-FTE-student basis, this will equate to a debt burden of just over $13,500, in line with expectations at the time of the last review. The University has no plans for additional borrowing this fiscal year; however, the projected decline in enrolment is expected to push debt-per-FTE to just over $13,800 through 2015–2016, a level deemed to be manageable for the ratings. The Province of Ontario (the Province; rated AA (low) by DBRS) recently announced that a new Laurier campus development in Milton would not proceed in the medium term, providing comfort that the University’s debt outlook is unlikely to evolve materially above expectations in the current capital plan.

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 2015), 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.