DBRS Confirms University of Ottawa at AA (low), Stable Trends

DBRS Limited (DBRS) confirmed the Issuer Rating and Senior Unsecured Debt rating of the University of Ottawa (Ottawa or the University) at AA (low). Both trends are Stable. The University’s credit profile is supported by its strong reputation as a leading research-intensive university, breadth of program offerings and status as Canada’s largest bilingual university. The University also benefits from its location in Canada’s capital and a relatively strong balance sheet. The University is rated the same as the Province of Ontario.

The University reported a surplus of $69.8 million for the year ended April 30, 2018, which exceeded expectations and was an improvement from the $48.6 million surplus reported in the prior year. The better-than-expected result reflects higher-than-expected operating grants, strong investment income and cost containment measures to address budget imbalances. The strong results mask some of the underlying weakness in the University’s core operating fund stemming from weak revenue growth and persistent expense pressures.

The operating outlook remains challenging for Ottawa, but the outlook has improved from prior years. The budget is balanced for 2018–19, and the multi-year outlook suggests only modest deterioration. However, the pace of structural reforms to address internal budget incentives and improve financial accountability has exceeded expectations and the enrolment outlook has improved. The major uncertainty facing the University is ultimately provincial policy.

The Progressive Conservative Party of Ontario was elected in June 2018, and its election platform was largely silent on post-secondary education policy. The government has yet to provide any guidance regarding operating funding and the tuition framework. However, the government has emphasized restraint since taking office. A more constrained revenue framework would pose a challenge for Ottawa.

The University continues to have a relatively strong financial profile among DBRS-rated universities. The University’s debt per full-time equivalent fell to $7,789 in 2017–18 from $7,932 the year prior, and the ratio of expendable resources-to-debt rose modestly to 97.8%. Ottawa’s financial ratios are strong relative to most DBRS-rated universities and consistent with the rating category. With stable enrolment and tight operating results, DBRS expects the financial ratios to remain around current levels or improve modestly through the medium term.

DBRS expects the ratings to remain stable. A positive rating action is unlikely in the near to medium term. A negative rating action, also unlikely, could nevertheless result from a sustained deterioration in operating results and the balance sheet.

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.

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.