DBRS Confirms Université du Québec à Montréal at A (low), Stable Trend

DBRS Limited (DBRS) has today confirmed the Issuer Rating and Senior Unsecured Debentures rating of the Université du Québec à Montréal (UQÀM or the University) at A (low) with Stable trends. The ratings continue to reflect the academic profile and importance of UQÀM to the Province of Québec (the Province), the high level of provincial support and the University’s relatively low debt burden for the assigned ratings. The ratings are constrained by the University’s lack of expendable resources and reliance on short-term borrowing for working capital purposes, as well as by a difficult operating environment characterized by a weak demographic outlook, limited tuition fee flexibility and constrained funding.

On a consolidated basis, the University recorded a very modest deficit of $0.9 million compared with a deficit of $12.5 million the prior year. Total revenue for F2016 fell by 1.5% amid a decline in full-time equivalent (FTE) enrolment of 2.6% (as tracked by DBRS), but expenses for the same period fell by 3.7% as management undertook comprehensive cost containment efforts and efficiency savings totalling nearly $20 million. Despite these efforts, and partly because of a reclassification of some operating expenses to capital expenses, the University’s unrestricted accumulated operating fund deficit for F2016 rose by $3.3 million to $231.9 million, missing the target to balance as articulated in the plan de Résorption du Déficit (the PRD) with the Ministry of Education and Higher Education. The PRD defines annual deficits as growth in the unrestricted accumulated operating fund deficit. Based on the 2015-2016 results, the PRD was extended by three years, with the University now planning to return to balance in 2018-2019.

In 2016-2017, the University currently anticipates that the accumulated operating fund deficit will again rise by $3.3 million, versus $5.9 million in the initial budget, because of a mix of modest government reinvestment and cost savings, partially offset by lower enrolment and inflationary pressures. The University’s revised 2016-2017 budget has identified nearly $12 million in cumulative efficiency measures; however, most measures are one-time in nature. DBRS expects that rising provincial fiscal flexibility and anticipated reinvestment in the sector will be supportive of the revised deficit reduction plan, but that further efforts will be required to meet provincial operating performance targets in the years ahead.

UQÀM’s debt burden currently stands at $6,163 per FTE, up modestly from $6,053 in 2014-2015 because of the decline in enrolment. The capital plan does not include any major development initiatives that will require external borrowing.

RATING DRIVERS:
While not expected in the near term, upward rating pressure may occur over the medium term if operating results improve on a sustained basis, debt continues to trend down and the operating environment becomes more supportive. Although not anticipated, the credit profile may experience downward pressure if the University’s debt burden evolves notably above current expectations, or if operating performance deteriorates on a sustained 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 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.