DBRS Confirms Brock University at “A,” Changes Trend to Positive

DBRS Limited (DBRS) has today confirmed the Issuer Rating and Senior Unsecured Debentures rating of Brock University (Brock or the University) at “A” and has revised the trend to Positive from Stable. The ratings remain supported by the University’s predictable revenue base, modest debt burden and very manageable post-employment benefit obligations compared with similarly rated peers. Meanwhile, the Positive trend reflects improved fiscal discipline which has led to stronger operating performance and, importantly, interest coverage ratios. Furthermore, increased clarity regarding Brock’s future capital plan and debt needs provides DBRS with comfort that Brock’s debt-per-full-time equivalent (FTE) ratio will remain low, approaching $7,000, over the medium term. This contrasts with a notably higher debt burden that had been anticipated when the ratings were downgraded in 2011 and represents a very manageable burden for an “A”-rated university. DBRS notes, provided that operating performance remains sound in an environment of declining enrolment and constrained provincial funding and that new debt needs do not arise, the rating could be upgraded by one notch at DBRS’s next review. Alternatively, the trend could be returned to Stable should the operating performance and debt metrics not evolve as currently envisioned.

In 2014-2015, Brock recorded a consolidated surplus of $16.9 million, its second consecutive surplus. This equates to 5.4% of total revenues, up from just 0.3% based on restated results for the prior year. This boosted interest coverage to 4.6 times (x) from 2.4x in 2013-2014. While the operating environment remains challenging in 2015-2016, Brock continues to target a balanced operating position after incorporating mitigation efforts of $3.9 million or approximately 1.3% of total expenditures. Total revenues are budgeted to decline by 0.6% as the University anticipates its first decline in enrolment since 2008-2009. Over the medium term, Brock is planning for further enrolment declines and management has shown strong fiscal resolve to deal with in-year pressures as they arise. Brock is also taking steps to strengthen financial sustainability through a new fiscal framework which focuses on using operational metrics to support resource allocation, funding deferred maintenance and reducing debt.

Total debt rose by 11.7% to $153.5 million in 2014-2015. This was consistent with expectations and was driven by new borrowing that was undertaken to complete the performing arts building, net of amortization of existing debt. Modest enrolment growth provided a partial offset, with debt per FTE rising to $7,652 from $6,913 in the prior year. Based on a modest capital program and the expectation that no additional debt will be required for the next five to six years, Brock’s debt per FTE is expected to reach to $7,748 in 2015-2016 and decline thereafter to a level below $7,000 by 2019-2020.

In December 2015, Brock announced that Dr. Wendy Cukier will succeed Dr. Jack Lightstone as President and Vice-Chancellor beginning September 1, 2016. DBRS does not expect this change to affect the University’s prudent management or strong fiscal resolve.

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, which can be found on our website under Methodologies.

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