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

DBRS Limited (DBRS) confirmed the Issuer Rating and Senior Unsecured Debentures rating of York University (York or the University) at A (high) with Stable trends. The ratings are supported by York’s sound academic profile, favourable location in the GTA with access to a large and growing student population and manageable debt burden. The University continues to experience some challenges from a constrained revenue environment, provincial policy uncertainty and the impact of a recent labour disruption on short- and medium-term enrolment prospects.

Fiscal performance continues to improve, as York generated an operating surplus of $86.4 million (DBRS-adjusted), or 7.5% of revenues, for the year ended April 30, 2018. However, the year was affected by a lengthy labour disruption which carried into 2018–19. After deferring revenue of $63.8 million due to the strike, the University reported an operating surplus of $22.6 million.

For 2018–19, including the effects of the labour disruption, the budget projects an operating shortfall of $33.5 million, followed by a return to small operating surpluses in the outer two years of the plan. Increased student fee revenues will continue to be the key driver of revenue growth, while the introduction of a new Strategic Mandate Agreement (SMA2) with the Province of Ontario (Ontario or the Province; rated AA (low) by DBRS) is expected to result in relatively stable provincial funding over the budget planning period. Given the still challenging outlook for domestic undergraduate students, York remains focused on increasing international enrolment and boosting graduate enrolment based on agreed upon targets with the Province. Ongoing labour negotiations will continue to influence the expenditure outlook.

The operating environment for Ontario universities appears somewhat uncertain through the medium term because of the recent change in provincial government. In the absence of new direction, the University has assumed that the existing funding and tuition framework remains in place. On October 23, 2018, the Province announced the cancellation of funding for the development of three new satellite campuses, including York’s planned campus in Markham.

York’s debt burden is expected to gradually decline over the medium term. With all capital expected to be funded through internal reserves or government contributions, no new borrowing is anticipated, and a small portion of existing debt will continue to amortize. As a result, debt-per-FTE is expected to decline to $10,700 in 2018–19 and approach $9,800 by 2020–21, assuming modest growth in enrolment.

RATING DRIVERS
A positive rating action could arise from clarity around stability in the operating environment, combined with further modest improvement in financial risk assessment metrics. A negative rating action is unlikely, given that the University is well-positioned within the current rating category.

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.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.