DBRS Confirms McMaster University at AA, Stable Trend

DBRS Limited (DBRS) confirmed McMaster University’s (McMaster or the University) Issuer Rating and Senior Unsecured Debt rating at AA with Stable trends. The ratings are supported by McMaster’s strong academic profile, steady enrolment growth, a track record of strong financial management and considerable financial flexibility, though the current provincial policy environment adds an element of uncertainty to the medium-term operating outlook.

For the year ended April 30, 2018, the University reported a consolidated surplus of $123.8 million, or 11.2% of revenues. This was an increase from a surplus of $112.1 million in 2016-17 and continues to demonstrate a track record of prudent financial management.

The University remains focused on key priorities, and the 2018-19 budget includes incremental funding for strategic initiatives such as advancing the University’s reputation and brand, library acquisitions, student supports and community engagement, along with other initiatives. On a consolidated basis, the budget projects a surplus of $87.6 million, or 7.5% of total revenues.

The operating environment for Ontario universities appears somewhat uncertain through the medium term because of the recent change in provincial government. Absent any policy direction from the Province of Ontario (rated AA (low) with a Stable trend by DBRS), McMaster has assumed the status quo for operating grants and the tuition fee framework for its medium-term projections. The University continues to plan for modest enrolment growth, driven by international enrolment. In addition, the University will be entering a busy year of collective bargaining in 2019-20, with faculty and teaching assistants’ agreements coming up for renewal, the outcome of which will influence medium-term expense projections.

Although McMaster has a robust capital plan to modernize facilities, address deferred maintenance and increase capacity, DBRS does not anticipate any new borrowing in the current year. As a result, the amortization of existing debt and modest enrolment growth are expected to reduce the debt per full-time equivalent student ratio to $8,310 in 2018-19 and $8,073 in 2019-20. The University may consider additional external borrowing over the medium term to fund potential capital initiatives.

RATING DRIVERS
DBRS expects the ratings to remain stable. A negative rating action could arise from a deterioration in operating results and significant debt issuance. A positive rating action could result from an upgrade of the provincial funder rating and an improvement in the government funding and tuition frameworks.

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 & Criteria.

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.

DBRS will publish a full report shortly that will provide addi¬tional analytical detail on this rating action. If you are interested in receiving this report, contact us at info@dbrs.com.