DBRS Confirms the University of Windsor at “A,” Stable Trend

DBRS Limited (DBRS) has today confirmed the Issuer Rating and Senior Unsecured Debentures rating of the University of Windsor (UWindsor or the University) at “A,” with Stable trends. The ratings continue to reflect the University’s position as an important regional institution within the provincial network, prudent financial management practices and a stable, though challenging operating environment. A weak domestic enrolment environment and an increasing reliance on international students will require proactive management to ensure fiscal sustainability, while rising debt erodes flexibility in the credit profile.

The University recorded a DBRS-adjusted surplus of $0.1 million in 2015–2016. Total revenues were relatively flat, as soft enrolment offset increased tuition rates. Total enrolment declined to 14,737 full-time equivalents (FTEs), or 3.2% below the previous year, as undergraduate enrolment remained on a declining trend for the fourth consecutive year and was only partially offset by increases in graduate enrolment. Total expenditures rose by 3.3% and included a one-time increase in amortization expenses to account for the demolition of the Clark Residence. Interim 2016–2017 results suggest that operating performance is largely on track for another balanced result as revenues have exceeded budget as a result of a combination of higher-than-planned enrolment and stronger investment income. This has allowed the University to increase investments in priority initiatives, including deferred maintenance and information technology procurement projects. DBRS expects UWindsor to remain focused on balanced budgets going forward and the recently adopted 2017–2018 budget incorporates a draft second Strategic Mandate Agreement with the Province of Ontario (rated AA (low) by DBRS) and the expected impact of a revised provincial funding formula.

The University’s total debt, net of sinking funds, declined to $156.5 million as at April 30, 2016, from $159.6 million a year earlier. As a result of declining enrolment, debt per FTE rose to $10,620, from $10,484 in 2014–2015. Weaker operating performance, however, reduced interest coverage to 2.8 times (x) from 4.3x a year earlier. DBRS estimates the debt burden to have declined slightly to approximately $10,400 per FTE in 2016–2017. Based on the recent Board approval, an additional $40 million in external financing is anticipated over the next two to three years which will be used to replenish internal reserves and to fund contributions to capital projects. DBRS has assumed modest enrolment declines over the next two years and estimates that the debt burden could reach approximately $12,800 per FTE by 2018–2019. At this level, debt remains consistent with the current “A” ratings, but exhausts flexibility within the credit profile.

RATING DRIVERS
With the anticipated increase in debt, rating improvement is unlikely in the near term. Conversely, a sustained deterioration in financial risk metrics beyond what is currently ancitipated by DBRS may lead to downward ratings pressure.

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.