DBRS Confirms Concordia University at “A” with a Stable Trend

DBRS Limited (DBRS) has today confirmed the Issuer Rating and Senior Unsecured Debt rating of Concordia University (Concordia or the University) at “A.” Both trends are Stable. The ratings continue to reflect Concordia’s strong academic profile, the high level of support from and the involvement of the Province of Québec (the Province; rated A (high) with a Stable trend by DBRS) in post-secondary education and the University’s responsiveness to budget challenges.

Nevertheless, the University continues to face financial challenges. Successive funding reductions by the Province and limited tuition fee flexibility have required significant expenditure management. The University has introduced a number of measures to reduce costs and slow cost growth. DBRS expects the University’s operating results to remain weak through this period of adjustment and for the balance sheet to deteriorate further. However, the actions being taken and further enrolment growth should enable the University to achieve a balanced operating result in 2019–20.

The University reported a loss of $19.7 million in 2015–16 and expects to post a further, albeit smaller, loss for 2016–17. The University was subject to the final funding reduction in 2015–16 and experienced a modest enrolment decline because of problems with the introduction of a new student information system. Enrolment has since recovered, but the University’s finances remain under pressure as it implements various cost-reduction initiatives, some of which have significant upfront costs (e.g., the Voluntary Retirement Program). Nevertheless, the University has shown significant success in limiting total expense growth despite persistent inflationary pressures related to its labour-heavy cost base and physical infrastructure requirements.

The medium-term outlook will remain challenging for the University. Revenue growth is likely to remain constrained as increases in provincial funding are expected to be modest and the limited flexibility to raise tuition fees is unlikely to change. In the coming years, persistent inflationary pressures and modest revenue growth will likely require the University to continue to rationalize operations and seek out efficiency gains where possible.

The University’s debt is expected to rise higher in the coming years because of ongoing debt-financed capital investment. While the trajectory for debt growth remains uncertain, DBRS estimates that Concordia’s university-supported debt burden could rise to as much as $12,500 per full-time equivalent in 2018–19 from $10,743 in 2015–16.

DBRS expects the ratings to remain stable over the medium term. A positive rating action is unlikely, while a negative rating action could be taken at the time of the next review if the outlook for operating results weakens and debt growth exceeds DBRS expectations.

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 principal methodology is Rating Public Universities, which can be found on dbrs.com 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.