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

DBRS Limited (DBRS) has today confirmed the Issuer Rating and Senior Unsecured Debt rating of the University of Guelph (Guelph or the University) at “A” and has revised the trend to Positive from Stable. The Positive trend reflects stronger financial performance and lower debt accumulation than was expected at the time of DBRS’s last review. The ratings are supported by the University’s strong academic profile, consistently positive operating results, stable cash flows and rising endowment and expendable resources.

DBRS expects that the rating could be increased by one notch at the time of DBRS’s next review, provided that the outlook for the University’s debt burden does not rise unexpectedly and the University’s operating budget and cash flows are not adversely impacted by a significant increase in special pension payments due to (1) a large going concern or solvency deficit at the time of the next pension valuation (August 1, 2016) or (2) because of changes in the provincial government’s policy approach to solvency relief in the sector. The trend could be returned to Stable if the debt outlook worsens or if significant additional pension contributions are required.

While there remains uncertainty over provincial tuition and funding frameworks, DBRS expects the provincial government will continue to be supportive of post-secondary education and that any changes will not adversely impact universities. Similarly, DBRS expects the provincial government will continue to accommodate pension solvency deficits in the sector given (1) the impact that a significant increase in pension payments would have on university budgets and programming, (2) ongoing progress by Universities to improve the sustainability of their defined benefit pension plans and (3) sector-wide progress on discussions around the establishment of a multi-employer jointly sponsored pension plan.

In 2015–16, the University expects another operating fund surplus, which should translate into a positive consolidated surplus. After projecting an outright decline, enrolment has increased by nearly 260 full-time equivalents (FTEs), or 1.2%, as applications and acceptances were better than anticipated. The bump in enrolment has pushed revenue $13.4 million higher than planned. Operating costs have continued to rise, driven by higher compensation costs and increased spending on University infrastructure. Notwithstanding this growth, the University has made progress in addressing structural budget imbalances in various divisions and, with higher enrolment, the pressure to continue making structural adjustments has eased.

The University’s long-term debt was $224.5 million at April 30, 2015, or $10,418 per FTE. The debt burden is expected to fall further in 2015–16 before rising modestly in 2016–17. DBRS expects the University’s debt burden to peak at about $11,100 per FTE in 2016–17 before gradually declining in subsequent years. This peak is materially lower than the peak of $13,200 per FTE expected at the time of DBRS’s last review. While this level of debt remains high relative to other DBRS-rated universities, Guelph’s academic profile and otherwise strong balance sheet remain supportive of the rating.

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.