DBRS Confirms Wilfrid Laurier University at A (low), Stable Trend

DBRS Limited (DBRS) has today confirmed the Issuer Rating and Senior Unsecured Debt rating of Wilfrid Laurier University (Laurier or the University) at A (low) with Stable trends. The ratings are supported by Laurier’s reasonably solid academic profile, history of robust enrolment growth and responsive management framework; however, limited growth in provincial funding, weaker demographics and persistent cost pressures have made efforts to address the structural budget deficit more challenging, necessitating the use of reserves and one-time strategies to achieve balanced budgets. Further realignment of revenues and expenses will likely be necessary to sustainably address the budget gap, a goal that should be supported by a new hybrid responsibility-centred budget model in 2017-18.

In 2014-15, Laurier reported a DBRS-adjusted deficit of $12.9 million or 3.9% of total revenues, a deterioration from the $7.4 million surplus reported in the prior year. Revenues declined by 1.1%, driven primarily by lower provincial operating grants as enrolment declined by 1.8% on a full-time equivalent (FTE) basis. Expense growth outpaced revenue, rising by 5.1% year over year (YOY), primarily as a result of higher salary and benefit costs. Preliminary results for 2015-16 point to an improvement over the prior year with a modest surplus in operating fund results, a positive variance against a budgeted consolidated deficit of $8.0 million, related to stronger enrolment and modest underspending on compensation.

The 2016-17 budget plan points to a significant increase in revenues and expenses of 7.0% and 6.0%, respectively, largely the result of higher tuition and grants from stronger enrolment attained the prior year, matched by higher compensation costs and general inflation. After accounting for reallocations to fund new strategic initiatives, the operating fund deficit (cash basis) is projected at $7.3 million. To reach balance, Laurier is again planning for a number of one-time measures including the use of reserves, prior appropriations and contingencies; however, the stronger-than-anticipated results in 2015-16 will likely allow the University to avoid some of these measures. Application data is supportive of an increase in FTE enrolment for 2016-17, which the University projects at 1.7% YOY.

Following the final draws on the University’s long-term bank credit facility, the debt burden rose to $13,600 per FTE in 2014-15 and is expected to have declined to $13,378 per FTE in 2015-16, a level considered to be manageable for the ratings. Based on DBRS’s assumption of flat enrolment and continued amortization, debt should recede to just below $13,000 in 2017-18. The University does not have near- to medium-term plans for additional borrowing, although conceptual capital projects could lead to new debt needs if approved.

RATING DRIVERS
While not anticipated, the ratings could come under downward pressure if there is a notable deterioration in operating results as a result of enrolment declines or other pressures, or if the debt burden and servicing requirements rose notably to finance new capital projects. The ratings could experience upward pressure if debt were materially reduced and the structural budget gap were addressed on a sustainable basis.

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 (June 2016), which can be found on our website under Methodologies.

The rated entity or its related entities did participate in the rating process. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities.

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.