DBRS Confirms Simon Fraser University at AA (low), Stable Trend

DBRS Limited (DBRS) confirmed Simon Fraser University’s (SFU or the University) Issuer Rating and Senior Unsecured Debt rating at AA (low), with Stable trends. The ratings reflect the University’s academic profile as a leading comprehensive institution nationally and in the Province of British Columbia (the Province; rated AA (high) with a Stable trend by DBRS), a favourable location and catchment area in the Metro Vancouver Regional District and relatively low debt burden. Upward rating pressure is limited by a relatively low level of expendable resources, sizeable deferred capital maintenance and renewal needs and modest funding growth.

Operating results remain strong, with the University posting a DBRS-adjusted operating surplus of $30.4 million, or a solid 4.4% of total revenue, in 2016–17. A surplus of $15.1 million is projected for 2017–18. SFU’s overall enrolment has been generally stable for several years, rising by just under 1.0% in 2016–17, with growth in international students driving most of the gains. SFU remains above provincially funded enrolment levels for domestic undergraduate and graduate students, and DBRS expects that future enrolment gains will be modest and driven mostly by new targeted funded spaces for domestic students for the ongoing expansion of the Surrey Campus. International undergraduate enrolment is expected to stabilize at current levels over the medium term, or 20% of the student population.

The University’s long-term debt level was stable in 2016–17 because of the provincial moratorium on debt financing. The debt burden per full-time equivalent (FTE) student declined with modest enrolment growth to $5,844, from $5,906 the prior year, considered very manageable for the ratings. Interest coverage was ample for the rating at 8.1 times, while balance sheet flexibility in the form of expendable resources rose to 41% of debt outstanding (from 36%). SFU’s level of expendable resources remains relatively low compared to other similarly rated universities.

RATING DRIVERS
The trend on the ratings is Stable. The credit profile is gradually improving, but no rating action is anticipated over the medium term. A positive rating action could occur with rising balance sheet flexibility in the form of higher expendable resources and more favourable provincial funding and tuition frameworks. A negative rating action, although not anticipated, could occur if the Province were downgraded and the University’s financial performance metrics weakened notably.

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.