DBRS Confirms the University of Windsor at “A,” Stable

DBRS Limited (DBRS) confirmed the Issuer Rating and Senior Unsecured Debentures rating of the University of Windsor (UWindsor or the University) at “A” with Stable trends. The ratings continue to reflect the University’s position as an important regional institution within the provincial network, prudent financial management practices and a challenging but relatively stable operating environment supported by a gradually improving enrolment outlook. However, an increasing reliance on international students presents unique challenges to an institution of the University’s size and academic profile, which will need to be managed carefully.

The University continues to exhibit sound operating performance, recording its sixth consecutive surplus ($3.4 million) in 2016–2017. DBRS adjusts reported results to exclude a $1.1 million non-cash unrealized gain on interest rate swaps, resulting in a DBRS-adjusted surplus of $2.3 million, up from $0.1 million in 2015–2016. Similarly, interim results for 2017–2018 point to another modest consolidated surplus supported by higher-than-planned enrolment. Over the medium term, DBRS expects the University will continue to target balanced budgets. Finalization of UWindsor’s second Strategic Management Agreement, in conjunction with the Province’s new funding formula and current tuition framework, provides a degree of revenue stability for the near term. Enrolment remains the key revenue risk, although a new strategic enrolment management initiative is showing signs of progress and the enrolment outlook points to modest growth. Furthermore, with only one smaller labour agreement coming up for renewal in late 2018–2019, the financial impact of any collective agreement renewals will not be felt until 2019–2020. This provides a high degree of predictability to operating costs, suggesting that fiscal performance should be relatively stable.

As at April 30, 2017, UWindsor’s total debt, net of trusteed sinking funds, stood at $153.2 million, resulting in debt per full-time equivalent (FTE) of $10,345, down from $10,620 in 2015–2016. Subsequent to fiscal year end, UWindsor issued additional debentures (Series B) for $40.0 million in July 2017, pushing debt per FTE to roughly $12,500 per FTE. UWindsor does not foresee additional debt needs in the near term. A portion of the proceeds from last year’s issuance remain unused and available for planned capital projects. As a result, assuming modest enrolment increases over the next two years, DBRS estimates that the debt burden could moderate to approximately $11,900 per FTE by 2019–2020, which remains within an acceptable range for the assigned ratings.

RATING DRIVERS
Given the stability of UWindsor’s academic profile and recent increase in debt, a positive rating action is unlikely in the near term. Similarly, a negative rating action is not anticipated in the near term but could arise from a combination of materially weaker enrolment or rising debt leading to a sustained deterioration in financial risk metrics.

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.