DBRS Confirms York University at A (high) with a Stable Trend

DBRS Limited (DBRS) confirmed the Issuer Rating and Senior Unsecured Debentures rating of York University (York or the University) at A (high) with Stable trends. The ratings are supported by York’s strong academic profile, conservative financial management practices and balance sheet flexibility. The University’s credit profile continues to experience some weakness from elevated debt levels and ongoing, albeit improving, budget challenges in some faculties.

The University reported a $36.5 million surplus in 2016-17, which was the third surplus since it began to implement a series of measures to address structural budget imbalances arising from weaker funding and declining enrolment. The University’s revenue growth (+5.2%) was driven primarily by higher tuition fees and modest enrolment growth, while expense growth (+4.0%) was contained as the University continued to implement measures to address financial sustainability.

The operating budget for 2017-18 targets a modest deficit of $16.9 million. The plan provides further allowances for divisions/faculties to incur deficits, but DBRS believes that operating results will surpass budget expectations as they have in past years. The University uses a conservative enrolment forecast and conservative budget assumptions. In addition, many faculties have made progress in addressing budget challenges and may, as in prior years, achieve positive variances.

The University’s debt issuance in 2016-17 was intended to fund its near-and-medium term capital priorities. As such, the University does not expect to return to capital markets in the near term. With much of its debt in the form of long-dated debentures, the University’s total long-term debt will remain stable over the coming years. However, the expected modest growth in enrolment will reduce the debt-per-full-time equivalent (FTE) ratio. DBRS projects the ratio will fall to $10,400 per FTE by March 31, 2020, from $10,992 at March 31, 2017.

DBRS expects the ratings to remain stable over the medium term. The ratings could experience upward pressure if York is able to increase enrolment by a moderate extent while also attaining greater balance sheet flexibility. A positive rating action could arise from improved provincial funding or a sustained improvement in enrolment and operating results. A negative rating action is highly unlikely but could arise from significant new debt issuance and a sustained deterioration in operating results.

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.

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