DBRS Confirms McMaster University at AA (low), Stable Trend

DBRS Limited (DBRS) has today confirmed McMaster University’s (McMaster or the University) Issuer Rating and Senior Unsecured Debt rating at AA (low). Both trends are Stable. The ratings reflect the University’s strong academic profile, proactive and effective financial management, positive enrolment outlook and considerable financial flexibility.

McMaster continues to post strong operating results. The University recorded a consolidated surplus of $29.1 million in 2015–2016, which was weaker than in prior years but was largely the result of weaker investment earnings. The outlook for 2016–2017 suggests a similarly sized result with modest growth in revenue being offset by inflationary cost pressures.

The operating environment for Ontario universities remains challenging; however, the University’s operating outlook remains positive and DBRS expects the University to fare well in the coming years. McMaster has strong research and academic profiles that are oriented toward high-demand disciplines. Its programs generally rank well in Canadian and international surveys and the University is favourably located in a high-growth region with close proximity to the Greater Toronto Area. As such, student demand has remained resilient and McMaster is planning to increase enrolment by 800 full-time equivalents (FTEs) per year over the next four years. These efforts are being reinforced by transformative capital projects, enhancements to student aid and general student supports as well as new program offerings and pathways.

Ongoing capital renewal and new capital projects have and will continue to increase capacity and alleviate some of the University’s deferred maintenance pressures. To support these efforts, the University issued $120 million in long-term debentures in 2015. With the issuance, McMaster’s debt burden rose to $9,185 per FTE at April 30, 2016, from $4,872 per FTE the year prior. At the same time, interest coverage weakened to 7.1 times and the ratio of expendable resources to debt fell to 143%. Nevertheless, the University continues to have ample financial flexibility at the current rating. DBRS expects McMaster’s credit metrics to remain relatively stable over the medium term.

DBRS expects the ratings to remain stable. A positive rating action could occur with improvements in the provincial funding and tuition frameworks and additional balance-sheet flexibility. A negative rating action, though highly unlikely, could occur if enrolment declined sharply or if changes to the operating framework led to a significant deterioration in operating results.

Notes:
All figures are in Canadian 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 Senior Unsecured Debt rating applies to the University’s Senior Unsecured Debentures and Series A Senior Unsecured Debentures.

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.