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

DBRS Limited (DBRS) confirmed the Issuer Rating and Senior Unsecured Debentures rating of Brock University (Brock or the University) at A (high) with Stable trends. The ratings are underpinned by the University’s position as a mid-sized comprehensive university in the Province of Ontario (Ontario; rated AA (low) with a Stable trend by DBRS), the high level of oversight and funding support from Ontario and sustained fiscal discipline. The Stable trends reflect DBRS’s expectations that business risk factors are likely to remain well anchored, while sound fiscal management combined with an improving enrolment outlook should be supportive of further improvement in financial risk metrics — consistent with expectations when the ratings were upgraded in February 2017.

In 2016–17, Brock recorded an operating surplus of $8.8 million, or 2.7% of total revenues — the fourth consecutive surplus. For 2017–18, a balanced budget was presented without having to rely on specific mitigation targets. Total revenues are budgeted to grow by 3.0% driven by a combination of higher tuition rates, targeted improvements in student retention and increased government grants. Meanwhile, expenditures are budgeted to grow by 5.8% driven primarily by salaries and benefits. Brock is in the process of preparing its second-trimester financial update, and management has indicated that enrolment targets, including retention targets, are expected to be met and additional funding for graduate students has been secured, providing DBRS with comfort that Brock will meet or exceed its targets. As mandated by the Board and reinforced through the University’s Fiscal Framework, Brock will continue to target balanced budgets through the medium term, although this will be challenging in an environment where inflationary cost pressures continue to outstrip growth in tuition and government funding.

As at April 30, 2017, total debt was $149.0 million, down by 1.5% year over year. When combined with a modest increase in enrolment, debt per full-time equivalent (FTE) declined to $7,420 from $7,609 a year earlier. Brock remains committed to a debt-reduction strategy adopted through its Fiscal Framework that aims to repay existing debts as they come due without refinancing. As a result, after incorporating the current enrolment forecast, which assumes average growth of roughly 2.0% annually between 2016–17 and 2021–22, debt per FTE is expected to decline to $7,340 in 2017–18 and continue falling to below $6,000 by 2021–22. This is an improvement from expectations at the time of DBRS’s last review on account of a more favourable enrolment forecast.

RATING DRIVERS
Following the ratings upgrade in 2017, further rating improvement is unlikely over the medium term. While not anticipated, downward pressure could arise from a sustained deterioration in operating performance and material increase in debt tolerance.

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.

The full report providing additional analytical detail is available by clicking on the link under Related Documents below or by contacting us at info@dbrs.com.