DBRS Confirms York University at AA (low) with Stable Trend

DBRS Limited (DBRS) has today confirmed the Issuer Rating and Senior Unsecured Debentures rating of York University (York or the University) at AA (low) with Stable trends. The ratings are supported by York’s sound academic profile, prudent financial management practices, sizable base of expendable resources and recent improvements in the University’s financial performance. York faces significant challenges in view of declining domestic enrollment, a constrained funding environment and consistent spending pressures. The University is moving forward with extensive reforms to its internal budget processes in an effort to address the structural imbalances that have emerged because of declining enrollment.

York reported a consolidated operating surplus of $19.9 million in 2014-15, up from $4.4 million the year prior. Revenue was flat with increases in international enrollment and tuition fees helping to offset declines in domestic undergraduate enrollment and reductions in government grants. Expenditures fell by 1.5% as a result of reductions in compensations costs and lower special pension contributions.

For 2015-16, the University’s operating budget, which covers about 70% of spending, projects an operating deficit of $27.8 million, a deterioration from the $0.3 million surplus recorded in 2014-15. The decline is largely driven by falling enrollment, with undergraduate enrollment expected to decline 4.8% on a fiscal full-time equivalent (FFTE) basis.

Long-term debt declined slightly with amortization of outstanding debentures to $404.5 million at April 30, 2015, but rose to $8,541 per full-time equivalent (FTE) because of the decrease in enrollment. Interest costs rose by 18% to reflect the full-year cost of the 2014 borrowings, but remain low at just 2.3% of revenue. Interest coverage has also improved, rising to 3.3 times (x) from 2.3x. The University’s capital plan remains modest over the near term and does not envision any substantive borrowing. As such, DBRS expects the debt burden to peak at just under $8,900 per FTE in 2015-16 and fall in subsequent years because of recovering enrollment. DBRS does note, however, that there remains considerable uncertainty regarding the scope of development for the new satellite campus in Markham and the extent to which York will be expected to contribute toward the one-time and ongoing costs of the campus, though DBRS understands that the University’s proposal for the campus did not envision any additional borrowing.

The outlook for the University remains challenging. Declining domestic undergraduate enrollment, the potential rebasing of provincial operating grants, the expiration of Stage II solvency relief for York’s pension plan and structural imbalances in many faculties require significant adjustments to the University’s operations. To meet these challenges, York is in the process of transitioning to a new budget model and following through on the results of its Academic and Administrative Program Review (AAPR). University leadership is well engaged in its challenges and is leading the transition to adjust to the new operating environment.

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.

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