DBRS Confirms the University of Windsor at “A” with a Stable Trend

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 reflect the University’s position as an important regional institution within the provincial network, prudent financial management practices and gradually improving enrolment outlook, despite a challenging operating environment and uncertainty about the direction of provincial policy. However, an outsized reliance on international students and on potentially at-risk differentiation funding present unique challenges to an institution of UWindsor’s size and academic profile.

The University continues to exhibit sound operating performance, posting a surplus of $11.8 million in 2017–18. DBRS adjusts reported results to exclude a $5.4 million non-cash unrealized gain on interest rate swaps, resulting in a DBRS-adjusted surplus of $6.4 million (or 1.8% of revenues), up from $2.3 million in 2016–17. For 2018–19, UWindsor is tracking in line with budget, or slightly ahead, and DBRS anticipates another modest surplus at year end.

The medium-term fiscal outlook is clouded by policy uncertainty; however, DBRS anticipates that UWindsor will strive for balanced budgets. The updated Strategic Mandate Agreement, in conjunction with the current provincial funding formula and a new tuition framework, provides a degree of revenue predictability for the near term. Tuition is the primary source of revenue volatility as a result of the recent 10% reduction in domestic tuition fees for 2019–20 and subsequent rate freeze for 2020–21. Mitigation strategies are currently being evaluated as part of UWindsor’s 2019–20 budget development process. DBRS expects UWindsor to look to a combination of measures to address the revenue shortfall, including increased international fees, potential cost-cutting efforts and an increased focused on enrolment growth through its Strategic Enrolment Management plan, which is showing signs of progress and includes conservative assumptions.

Following additional debt issuance in 2017–18, UWindsor’s debt, net of trusteed sinking funds, reached $189.3 million as at April 30, 2018. This marked a 23.5% increase from the previous year, bringing debt per full-time equivalent (FTE) to $12,482, up from $10,345 in 2016–17, and was consistent with DBRS’s expectations. As existing debt continues to amortize and the University makes regular contributions to its sinking fund, this will lead to a moderation in debt over time. DBRS does not anticipate any new external borrowing by the University in the near term. As a result, assuming modest enrolment growth of 1.0% annually over the next two years, DBRS estimates that the debt burden could decline to approximately $11,300 per FTE by 2020–21. This remains within an acceptable range for the assigned ratings.

RATING DRIVERS
Given the stability in 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 & 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.

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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