DBRS Confirms Simon Fraser University at AA (low)

DBRS Limited (DBRS) has today confirmed the Issuer Rating and Senior Unsecured Debt rating of Simon Fraser University (SFU or the University) at AA (low), with Stable trends. The ratings are supported by SFU’s strong academic profile as a mid-size comprehensive university, low and declining debt burden and record of prudent financial management that has supported strong operating performance. However, downside risks to the financial outlook include weakening domestic demographics, limited fee-setting autonomy and a constrained funding environment, combined with escalating compensation and deferred maintenance needs that will pressure the operating envelope in the coming years. Further budget realignment may be required to prevent drawdowns of internal resources as potential structural shortfalls emerge, but these spending pressures are expected to be manageable. DBRS also notes that the relatively high reliance on international students at SFU, while bolstering demand and providing considerable revenue support, exposes the University to global economic trends and exchange-rate volatility.

Despite a difficult operating environment, SFU reported another solid DBRS-adjusted consolidated surplus of $35.4 million in 2014-2015 before net endowment contributions, or 5.4% of revenues. Revenues advanced by 2.9% from the prior year, supported by growth in student tuition and fees despite a decline in full time equivalent (FTE) enrolment of 1.1% in 2014-2015, the second year of decline after a prolonged period of robust enrolment growth. Provincial operating grants rose by just 0.8%, as targeted grant growth helped to offset an ongoing three-year $50 million cut to the post-secondary sector introduced the prior year. Investment income also supported revenue and was well above budget. Expense growth was well contained at 1.3%, driven by moderate growth in salaries and benefits and other expenses. Pension expenses were below budget owing to strong investment returns and an updated discount rate assumption. In 2015-2016, results are expected to deteriorate somewhat, but remain in a consolidated surplus position.

The University’s debt burden remains very manageable and declined by 2.5% year over year to $155.7 million at March 31, 2015, or $5,919 per FTE, down from $6,000 the prior year. SFU’s latest five-year capital plan for 2015 to 2020 focuses on addressing deferred maintenance on the aging Burnaby campus, as well as a major expansion of the Surrey campus; however, aside from some self-funded projects most of the capital plan is likely to be deferred until sufficient capital funding from the Province of British Columbia (the Province; rated AA (high) with Stable trend) or external parties have been secured. The provincial moratorium on external indebtedness across the broader public sector will intensify the challenge of addressing the University’s capital investment needs and desired expansion plans, but is expected to result in the continual decline in SFU’s debt burden over the medium term, providing stability in the credit profile and flexibility at the current rating level.

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.