DBRS Confirms Concordia University at “A” with a Stable Trend

DBRS Limited (DBRS) confirmed the Issuer Rating and Senior Unsecured Debt rating of Concordia University (Concordia or the University) at “A.” Both trends are Stable. The ratings reflect Concordia’s strong academic profile, the high level of support and control exercised by the Province of Québec (Québec or the Province; rated A (high) with a Stable trend by DBRS) in post-secondary education and the University’s responsiveness to budget challenges.

Concordia has experienced significant financial pressure over the last five years because the Province reduced funding to the university sector as part of its broader deficit-reduction effort. Between 2010–11 and 2014–15, the Province imposed successive rounds of funding reductions, which prompted Concordia to make significant budgetary adjustments. With much of the expense base fixed and a deliberate effort to preserve the student experience, the period of adjustment is typically somewhat longer for universities. For Concordia, the difficult budget measures adopted in past years are now beginning to show through in the budget outlook.

The University reported a loss of $35.9 million ($22.2 million on a DBRS-adjusted recurring basis) for the 2016–17 fiscal year. This was likely the low point in results, as the University booked a one-time expense of $13.6 million for a voluntary retirement program. The outlook for 2017–18 and 2018–19 is now better. The University’s narrower operating fund deficit is falling, and Concordia expects the operating budget to be nearly balanced in 2018–19. This should translate into improving results in the audited financial statements.

While operating results are expected to improve, there is some medium-term uncertainty facing the University. Québec is in the process of reviewing the provincial operating grant formula for universities, which could affect the University’s plan to balance the operating budget and its longer-term growth strategy. There is relatively little information publicly available about the review, though messaging in the 2017 provincial budget suggested it could be in place as soon as the 2018–19 academic year.

The University’s debt is expected to rise higher in the coming years with rising capital investment. The timing and pace of debt growth, however, remains uncertain, particularly if the enrolment plan is to be affected by changes to the funding formula. DBRS believes Concordia’s university-supported debt burden could exceed $13,000 per full-time equivalent within three years.

DBRS expects the ratings to remain stable over the medium term. A positive rating action is unlikely, while a negative rating action could be taken at the time of the next review if there is a significant deterioration in the operating outlook and new borrowings significantly exceed current expectations.

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.