DBRS Confirms Queen’s University at AA, Stable Trend

DBRS Limited (DBRS) has today confirmed the Issuer Rating and Senior Unsecured Debt rating of Queen’s University (Queen’s or the University) at AA with Stable trends. The ratings reflect the University’s very strong academic profile, high level of endowment assets and relatively strong operating performance in recent years. The Stable trends reflect DBRS’s view that, despite a declining university-age population, Queen’s has a consistently strong applicant pool and profile that should support enrolment growth in the near to medium term, providing stability to tuition fee revenues and government operating grant allocations. DBRS does not expect Queen’s to materially increase its debt burden over the medium term following the completion of recent construction of new residences.

In 2014-15, the University recorded a very solid consolidated surplus of $61.9 million or 7.3% of revenues, primarily because of higher-than-budgeted investment returns. In 2015-16, DBRS anticipates that another consolidated surplus will be achieved, albeit narrower than the prior year. Debt has risen in line with expectations as the University drew down the final tranche of a bank loan facility for two new residences in 2015-16, bringing debt per full-time equivalent to an estimated $11,475, up from $10,242 in 2014-15. Queen’s academic profile and strong balance sheet, including $919 million endowment assets, mitigate the elevated debt burden.

The most significant financial risk facing the University continues to be pension sustainability, namely the potential for significant special payments to address the solvency deficit, and ongoing going-concern payments. Queen’s has been approved for Stage 2 provincial solvency relief, deferring solvency payments for an additional three years. The University remains a leading proponent of sector-wide efforts to establish a multi-employer jointly-sponsored pension plan (JSPP) with other Ontario universities to achieve a solvency exemption. While a JSPP is unlikely to be established in the near term, DBRS believes that the Province of Ontario (rated AA (low) by DBRS) will continue to accommodate pension solvency deficits in the sector as discussions around a JSPP progress.

The credit profile may come under downward pressure if the University’s debt burden evolves above current expectations, or if operating performance and debt service coverage deteriorate on a sustained basis because of negative developments in the operating environment, a weaker enrolment outlook or significant cash funding requirements for pension liabilities. Upward pressure on Queen’s credit profile remains limited, given the University’s current ratings that are above that of the provincial funder and its relatively high debt burden. The post-secondary operating environment remains challenging, given uncertainty over the provincial funding formula and tuition framework, although DBRS does not anticipate that any potential changes will be materially negative to Queen’s.

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.

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.