DBRS Downgrades York University to A (high) and Assigns a Provisional Rating on Series A Debentures; Trends Stable

DBRS Limited (DBRS) has today downgraded York University’s (York or the University) Issuer Rating and Senior Unsecured Debentures rating to A (high) from AA (low). The trend on both ratings is Stable. DBRS is also assigning a provisional rating of A (high) to the proposed Senior Unsecured Series A Debentures (Series A Debentures). The downgrade reflects the expected increase in long-term debt and the decline in expendable resources required to fund new infrastructure at a time when the operating environment remains challenging and uncertain.

At the time of the last review in November 2015, DBRS noted that a significant increase in debt would put downward pressure on York’s ratings. As a result of the new issuance, DBRS now expects the University’s debt burden to peak at $10,900 per full-time equivalent in 2016–17, which is materially higher than the peak of $8,900 expected at the time of the last review. Similarly, expendable resources could fall as low as 70% of outstanding debt from above 110% currently. These projected financial metrics are more consistent with a rating of A (high).

The operating environment remains challenging for Ontario universities because of declining domestic undergraduate enrolment, uncertainty over the provincial tuition and funding frameworks, lingering pension deficits and difficulties making structural adjustments in academic units to address budget imbalances caused by constrained funding and weaker demand for some program areas.

The University planned for limited capital investment in the coming year; however, the introduction of the federal government’s $2.0 billion Post-Secondary Institutions Strategic Investment Fund prompted the University to identify a number of capital projects that would enhance the University’s research and enrolment capacity in high-demand program areas. Under the program, the federal government will support up to 50% of eligible project costs for projects that are shovel ready, will enhance research and innovation capacity or will improve environment performance and can be substantially completed within the next 24 months. The Province of Ontario (rated AA (low) by DBRS) is expected to provide some level of support to eligible capital projects.

The University has identified $335 million in capital projects for which some proposals will be submitted to the federal government for funding consideration. While it is uncertain which projects will be approved for funding under this program, the University has indicated its intent to carry out some of the projects regardless of the funding decision. York intends to fund its share of the costs through the use of existing financial resources, fundraising and the proceeds of the forthcoming $100 million issuance of the Series A Debentures.

The new Series A Debentures will be direct senior unsecured obligations of the University and will rank equally with all of the University’s other unsecured obligations.

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.