DBRS Confirms the University of Ontario Institute of Technology (UOIT) at A (low), Stable Trend
UniversitiesDBRS Limited (DBRS) confirmed the Issuer Rating and Series A Senior Unsecured Debentures rating of the University of Ontario Institute of Technology (the University or UOIT) at A (low). Both trends are Stable. UOIT’s credit profile has improved in recent years with a series of positive operating results, balance-sheet improvement and debt reduction, which suggests a positive rating action may be warranted in the near term. At this time, however, DBRS has maintained a Stable trend because of the significant provincial policy uncertainty about the future adequacy of government funding and tuition fees. A significant change to core operating grants, the targeted grants or the tuition-fee framework could adversely affect the University’s credit profile.
The University continues to report positive results with a surplus of $15.4 million for the year ended March 31, 2018, equivalent to 7.3% of revenue. The result was well ahead of budget expectations and, as in past years, reflects better-than-expected enrolment, faculty expense savings and unused budget contingencies. The strong result also included a $3.2 million one-time item for a provincial sales-tax claim settlement related to UOIT’s construction (2003-2005).
The University prepared a balanced budget for 2018-19, which anticipated a modest decline in enrolment and included $3.8 million in contingencies and reserves. At mid-year, UOIT is tracking its budget plan. Total enrolment is slightly ahead of plan, though tuition revenue is modestly weaker because of an unexpected shift in the international-domestic student mix following the withdrawal of a significant number of Saudi Arabian students in August. The weaker revenue outlook has been offset by positive expense variances.
The University’s debt burden remains the highest among DBRS-rated Ontario universities at $23,410 per full-time equivalent (FTE) student, although the circumstances surrounding UOIT’s debt burden remain unique in the Ontario context. The Province supports a large share of the University’s annual debt-servicing costs through a restricted debt-servicing grant. While the legal obligation rests with UOIT, this arrangement effectively results in the University servicing only one-third of its total debt with general operations (i.e., unrestricted operating grants, tuition revenue, etc.). UOIT’s debt burden will fall steadily over the medium term, as much of the debt is in the form of amortizing debentures, and the University does not intend to incur any new indebtedness. DBRS projects that UOIT’s debt burden will decline to about $21,400 per FTE over the next three years.
DBRS could change the trend to Positive at the time of its next review if the outlook for operating results and debt reduction remains positive and the uncertainty related to the funding framework is resolved without adverse impacts. DBRS could also lower the rating if there is a sustained deterioration in operating outlook and a materially higher debt burden.
Notes:
All figures are in Canadian 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.
The full report providing additional analytical detail is available by clicking on the link under Related Documents below or by contacting us at info@dbrs.com.
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