DBRS Confirms Université du Québec à Montréal at A (low), Stable Trend

DBRS Limited (DBRS) has today confirmed the Issuer Rating and Senior Unsecured Debentures rating of Université du Québec à Montréal (UQÀM or the University) at A (low) with Stable trends. The ratings reflect UQÀM’s academic profile and important position within the provincial university network and its relatively low leverage compared to peers. However, the credit profile remains constrained by the challenging operating environment, including successive funding reductions and effectively no fee-setting autonomy, and by low internal liquidity. Absent a material base of expendable resources, the University continues to rely heavily on a bank line facility for working capital, a situation that reduces financial flexibility.

The University saw spending growth outpace revenues in 2014–15, resulting in a consolidated deficit of $12.5 million. Expenditures rose by 3.8%, driven primarily by rising salary and benefits. Revenue growth was muted at 1.1%, with provincial operating grants rising by just 0.3%. Tuition fee revenue rose by 3.5% YOY, reflecting modest indexation in rates and full-time equivalent (FTE) enrolment gains of 1.6%. The authorized deficit under the University’s Return to Balance Plan with the Province of Québec (rated A (high) with a Stable trend by DBRS) was $3.8 million, defined as growth in the unrestricted operating fund deficit. UQÀM was able to meet this target only by making a one-time $10.7 million transfer from the capital fund to operations, a practice viewed as unsustainable by DBRS.

In 2015–16, the University was again forced to undertake significant budget cuts to address a structural operating deficit of $20.7 million. The budget gap was nearly closed internally, before a funding cut announced mid-year and a notable decline in FTE enrolment of 2.2% reduced revenues significantly. The University currently forecasts an operating fund deficit of $12.5 million for the year, well above the plan to return to balance. The University continues to work with the Ministry of Education and Higher Education (MEES or the Ministry) and Ministry of Finance on a path forward. DBRS expects that rising costs and weak demographics will continue to constrain operating results despite more predictable funding growth for universities announced in the provincial budget.

UQÀM’s debt burden currently stands at $6,091 per FTE, down from $6,333 the prior year. The capital plan does not include any major development initiatives that will require external borrowing. While not expected in the near term, given the current outlook for enrolment and funding, upward rating pressure may occur over the medium term if operating performance improves on a sustained basis, debt continues to trend down, and the operating environment becomes supportive of balanced results as a result of renewed investment. The credit profile may experience downward pressure if the University’s debt burden evolves notably above current expectations, or if operating performance and debt service coverage deteriorate on a sustained basis because of further enrolment declines or negative developments in the 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.

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.

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