DBRS Confirms Simon Fraser University at AA (low), Stable Trend

DBRS Limited (DBRS) has today confirmed Simon Fraser University’s (SFU or the University) Issuer Rating and Senior Unsecured Debt rating at AA (low). Both trends are Stable. The ratings reflect the University’s academic profile as a mid-sized comprehensive university, favourable location in a growing region, relatively low and stable debt burden and history of effective financial management. The major challenges facing the University remain modest budget pressures resulting from constrained operating funding and the University’s significant backlog of deferred maintenance and new capital needs.

The University continues to post strong operating results. The University recorded a consolidated surplus of $14.9 million in 2015–2016. The result was weaker than in previous years, with expense growth outstripping flat revenue. The outlook for 2016–2017 is largely consistent with the prior year. The University has budgeted for a surplus of $13.2 million and expects moderate growth in both revenue (+5.5%) and expense (+5.9%). The growth reflects the baseline increases in the provincial operating grant, tuition revenue and university operating costs and an assumption at the time of the budget that provincial funding would be unstricted rather than restricted, as in the prior year.

The operating environment is expected to remain somewhat challenging for B.C. universities because of constrained operating grant funding, limited flexibility to raise tuition fees and weakening demographics. Nevertheless, DBRS expects that SFU will fare relatively well given its favourable location in high-growth areas, strong academic profile and relatively high proportion of international students. Domestic undergraduate enrolment is effectively limited under the B.C. model, but demand has remained strong and resulted in rising entering cut-off averages. The addition of new facilities, ongoing capital renewal and plans to expand the Surrey campus will likely lead to an increase in funded enrolment and an improved student experience, ultimately benefiting the University’s overall academic profile.

The University’s debt burden is expected to remain stable over the near term because of the provincial moratorium on university borrowings. As at March 31, 2016, the University’s debt burden was $155.4 million, or $5,906 per full-time equivalent. Interest coverage has weakened as a result of the narrower operating results but remains elevated at 7.0 times. The University’s balance sheet continues to exhibit flexibility, although the ratio of expendable resources to debt is notably lower than that for similarly rated universities.

DBRS expects the ratings to remain stable over the medium term. A positive rating action could occur with improvements to the provincial funding and tuition frameworks and increased balance sheet flexibility. A negative rating action, although unlikely, could occur if there is a significant deterioration in the University’s credit metrics and a downgrade of the Province of British Columbia (rated AA (high), Stable trend, by DBRS).

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 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.