DBRS Confirms University of Ontario Institute of Technology (UOIT) at A (low), Stable Trend

DBRS Limited (DBRS) confirmed the Issuer Rating and Series A Senior Unsecured Debentures rating of the University of Ontario Institute of Technology (the University or UOIT) at A (low). Both trends are Stable. The ratings are limited by UOIT’s elevated debt levels and lower level of expendable resources, but they are supported by an improving academic profile, strong student demand for its high-demand STEM program offerings, and effective financial management practices. DBRS expects the credit profile to improve steadily over the medium term.

The University continues to report positive operating results, with a $12.6 million surplus in the year ended March 31, 2017, equivalent to 6.2% of revenue. The University has controlled expense growth in recent years in anticipation of declining enrolment because of broader demographic trends. Enrolment growth has exceeded expectations, and in 2016–17, investment earnings were better than expected and budget contingencies were not used. The series of positive operating results have led to a sustained improvement in the University’s balance sheet.

The University prepared a balanced budget for 2017–18, which anticipated a modest decline in enrolment and included $4.6 million in contingencies. At mid-year, the outlook is significantly better than planned. The University is now projecting to conclude the year with an $11.4 million surplus as a result of a sales tax settlement (2003–2005), significant enrolment growth (+1.4%), expense savings from vacant positions and the budget contingencies.

The University’s debt burden remains the highest among Ontario universities at $24,738 per full-time equivalent student (FTE), though the circumstances around the University’s debt burden remain unique in the Ontario context. The Province of Ontario supports a large share of UOIT’s annual debt servicing costs through a restricted debt-servicing grant. While the legal obligation rests with the University, this arrangement effectively results in the University’s servicing only a third of its total debt from its general operations (i.e., unrestricted operating grants, tuition revenue, etc.). The University’s debt burden will fall steadily over the medium term, as much of the debt is in the form of amortizing debentures, and the University does not intend to incur any new indebtedness. DBRS projects the University’s debt burden will decline to about $21,750 per FTE over the next three years.

With stable funding, modest enrolment growth and a structurally balanced operating budget, DBRS expects the University’s credit profile to improve steadily over the medium term. A positive rating action would likely require further debt reduction and greater balance sheet flexibility. A negative rating action could result from 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 under Related Documents 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.

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