DBRS Confirms Trent University at “A,” Stable Trend

DBRS Limited (DBRS) confirmed the Issuer Rating and Series A Senior Unsecured Debentures rating of Trent University (Trent or the University), both at “A” with Stable trends. The ratings reflect Trent’s position as a leading, primarily undergraduate university in Ontario; the University’s relatively low burden; and favourable enrolment outlook. The high level of oversight and funding support from the Province of Ontario (the Province; rated AA (low) with a Stable trend by DBRS) also provides support to the ratings. The ratings are constrained by the tight operating environment facing all Ontario universities, the University’s smaller size and local catchment area, employee future benefit liabilities and a relatively low level of expendable resources.

Trent’s academic profile and recruitment efforts have translated into meaningful enrolment gains well above the system average in recent years, with full-time equivalent (FTE) enrolment rising by nearly 8% in 2016¬–17, the highest among DBRS-rated institutions, contributing to a consolidated surplus of $4.4 million or 2.6% of revenue. Performance has remained strong through 2017–18, with FTE enrolment rising by over 6% and the University currently anticipating a surplus within the operating fund of $1.9 million, well above budget expectations, mostly as a result of enrolment-driven revenue gains partially offset by higher student aid and teaching costs. DBRS also anticipates that the University will report a surplus on a consolidated basis.

The operating outlook remains favourable for Trent. DBRS expects that enrolment will continue to grow moderately, with an increasing share of international students contributing to positive operating results under the new funding formula, which is not sensitive to domestic enrolment growth. The formula is expected to result in stable funding, and performance targets within the updated Strategic Mandate Agreement (SMA) are likely to be achieved without difficulty. DBRS also notes that there is greater clarity since the time of the last review around the University’s employee future benefit liabilities, and that the budgetary impacts should be manageable as the University continues to explore a proposed jointly sponsored pension plan arrangement. DBRS projects that Trent’s debt-per-FTE will fall to roughly $8,000 in 2017–18 and continue to decline to roughly $7,600 through 2019–20 as enrolment gains offset modest interest-free borrowing through a provincial climate change energy retrofit program.

RATING DRIVERS:
DBRS expects the ratings to remain stable in the near term, reflecting recent performance and a stable but still constrained operating environment. Upward pressure on the rating could materialize if Trent maintains enrolment gains above the system average, including additional international enrolment, producing further improvement in financial risk metrics and greater balance sheet flexibility. Although not anticipated, downward pressure on the ratings could arise from a deterioration in operating performance or unexpected borrowing.

Notes:
All figures are in Canadian dollars unless otherwise noted.

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

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 under Related Documents or by contacting us at info@dbrs.com.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

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