DBRS Confirms York University at A (high), Stable Trend

DBRS Limited (DBRS) has today confirmed the Issuer Rating and Senior Unsecured Debentures rating of York University (York or the University) at A (high). Both trends are Stable. The ratings reflect York’s favourable reputation and location in the Greater Toronto Area (GTA), conservative financial management practices and balance sheet flexibility. The major challenges facing the University remain budget pressures stemming from weakening enrolment.

The University reported a $23.3 million surplus in 2015–16. This was the second notable surplus after the University began to implement a series of measures to address structural budget imbalances that had emerged in the weaker funding and enrolment environment. Modest revenue growth (+2.4%) was driven primarily by higher tuition fees as enrolment declined slightly (-1.9%). Nevertheless, the University contained expense growth (+2.1%), thus providing the larger surplus. The result exceeded budget expectations.

The University’s 2016–17 budget, which is limited to the narrower Operating Fund, projects a deficit of $22.4 million. The plan provides further allowances for divisions/faculties to incur deficits, though DBRS notes that the outlook is stronger than the budget suggests. In 2015–16, many faculties made significant adjustments which led to positive budget variances. Moreover, preliminary enrolment projections for 2016–17 are significantly higher than those assumed in the budget. As a result, DBRS expects a positive operating result in 2016–17.

Over the medium term, the University will continue to face challenges, though DBRS believes the outlook has improved since the May 2016 rating action. Enrolment has not declined as severely as first anticipated and initial indications suggest the changes to the tuition and funding frameworks are unlikely to adversely impact the university. DBRS expects funding to remain constrained, though stable over the medium term. This will put pressure on operating results, but will not require the significant budgetary adjustments first expected. Over the medium term, enrolment remains the key element of uncertainty.

The University’s debt burden is expected to remain stable over the medium term. The introduction of the federal Post-Secondary Strategic Investment Fund (SIF) prompted the University to move forward with a number of new capital projects, which required the issuance of $100 million in debt to fund the University’s share of the capital costs. With the issuance, the University has ample financial flexibility to undertake the projects and does not anticipate any further borrowing will be required in the near term.

DBRS expects the ratings to remain stable over the medium term. A positive rating action requires a moderate increase in enrolment and greater balance sheet flexibility. A negative rating action, though unlikely, requires a significant and sustained deterioration in operating results and a marked deterioration in the University’s balance sheet.

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.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.