DBRS Confirms Université du Québec à Montréal at A (low), Stable

DBRS Limited (DBRS) confirmed the Issuer Rating and Senior Unsecured Debentures rating of the Université du Québec à Montréal (UQÀM or the University) at A (low), with Stable trends. The ratings continue to reflect the academic profile and importance of UQÀM to the Province of Québec (the Province; rated A (high), Stable by DBRS), the high level of provincial support to the institution and the University’s relatively low debt burden for the assigned ratings. Limited budgetary flexibility, a weak enrolment outlook and a lack of liquidity and expendable resources as measured by DBRS continue to represent credit challenges.

The University recorded a modest deficit of $2.0 million on a consolidated basis, a deterioration from a deficit of $0.9 million the prior year, as expenditure growth of 1.2% modestly outpaced revenue growth of 1.0%. Within the operating fund only, the University recorded a small $0.4 million deficit. This was a positive variance against UQÀM’s plan to return to balance with the Ministry of Education and Higher Education (the Ministry), which had authorized an operating fund deficit of $5.9 million.

The declining share of university-age students in Québec continues to weigh on enrolment at UQÀM, where the number of full-time equivalent (FTE) students fell by 1.7% in 2016–17, and declined by a further 2.1% in 2017–18. The associated revenue impacts were partially offset by modest government reinvestment in the sector, which provided UQÀM with $3.0 million in incremental grants after several years of significant funding compression. Although the University appears to be on track to balance its operating budget by 2018–19, enrolment-driven revenue losses and inflationary pressures will exacerbate the challenge and may require further spending restraint and government support.

The University’s debt burden continued to decline through F2017, and remains low for the ratings at $5,812 per FTE. The debt burden is expected to gradually fall over the medium term, as no new borrowing for capital projects is currently anticipated. The University maintains a bank line of credit with an authorized limit of $120 million for short-term working capital needs and to bridge timing differences between expenses and the receipt of government grants, as is common in the broader public sector in Québec.

RATING DRIVERS:
The Province’s improved fiscal position is enabling reinvestment in higher education and is improving financial flexibility for Québec universities. While the enrolment outlook remains weak, UQAM is making progress towards returning to a balanced budget. Upward rating pressure is likely if the University returns to balance, the debt burden remains stable or continues to decline, and the operating environment continues to improve with sustained reinvestment through a modernized funding framework. Although not anticipated, ratings may experience downward pressure if the University’s debt burden evolves well above current expectations, or if operating performance deteriorates on a sustained basis because of enrolment weakness or other negative changes to operating environment.

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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