DBRS Confirms Queen’s University at AA, Stable Trend

DBRS Limited (DBRS) confirmed the Issuer Rating and Senior Unsecured Debt rating of Queen’s University (Queen’s or the University) at AA with Stable trends. The ratings are supported by the University’s superior academic profile, strong operating performance and high level of expendable resources and endowment assets. The ratings are constrained by a relatively high level of debt per full-time equivalent (FTE) student for the assigned ratings, a challenging operating environment and pension-related liabilities. Despite a weak demographic outlook for university-age students domestically, Queen’s strong applicant pool and superior academic profile should support plans for modest enrolment growth over the medium term.

In 2016–17, Queen’s reported a healthy surplus of $88.6 million, or 9.4% of revenues, up from $39.5 million the previous year, as strong investment income and growth in student fees outpaced expense growth. DBRS anticipates another consolidated surplus in 2017–18, although potentially reduced from the prior year due to weaker investment returns. International undergraduate enrolment is currently tracking above plan, which points to favourable performance relative to budget. Over the medium term, the University continues to plan for balanced operating budgets after modest contributions to the capital fund, assuming a continuation of the current tuition framework, modest enrolment growth and the successful renegotiation of labour agreements along affordable terms.

Queen’s debt burden remains high for the assigned ratings but has evolved in line with expectations. No new debt was incurred in 2016–17, and as a result, debt fell to $11,022 per FTE, down from $11,552 a year earlier. As existing debt continues to amortize, and enrolment grows modestly, debt is expected to fall to approximately $10,550 per FTE in 2017–18 and trend down toward $10,000 per FTE over the next two to three years.

Sizable unfunded pension liabilities continue to present a considerable challenge for Queen’s but are being addressed. Based on updated valuation, the going concern shortfall has improved notably, although the solvency deficit has widened. Queen’s, along with two other universities, continues to pursue a multi-employer jointly sponsored pension plan, which, if successful, could be positive for the University and help to remove uncertainty around the outlook for future pension costs.

RATING DRIVERS:
The credit profile may come under pressure if debt rises above current levels, if balance sheet flexibility (e.g., expendable resources) deteriorates notably or if operating performance weakens on a sustained basis. Upward pressure on Queen’s credit profile remains unlikely given the University’s current ratings, which are above that of the provincial funder.

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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