DBRS Confirms Concordia University at “A” with a Stable Trend
UniversitiesDBRS Limited (DBRS) confirmed the Issuer Rating and Senior Unsecured Debt rating of Concordia University (Concordia or the University) at “A.” Both trends are Stable. The ratings reflect Concordia’s academic profile, the high level of support and control exercised by the Province of Québec (Québec or the Province; rated A (high) with a Stable trend by DBRS) in post-secondary education and the University’s responsiveness to budget challenges.
Concordia’s finances continue to progress through a period of adjustment. Between 2010–11 and 2014–15, the Province reduced funding to the university sector as part of its broader deficit-reduction effort, prompting a significant deterioration in the University’s finances and requiring meaningful expense management and reforms. The Province began restoring lost funding in 2017–18 and has announced favourable changes to the tuition fee framework. As a result of the expense management initiatives and an improved revenue outlook, operating losses are now gradually declining.
The University reported a loss of $13.7 million for the year ended April 30, 2018. The loss is similar to the one incurred the prior year after excluding a one-time expense of $13.6 million for a voluntary retirement program. The outlook for 2018–19 has improved. The University’s narrower operating fund deficit is likely to be eliminated during the year, and the audited financial statements are expected to show a further drop in operating loss.
Concordia has begun preparing its 2019–20 budget. With no significant policy announcements contained in Québec’s 2019 provincial budget, the University’s finances are likely to show steady, albeit modest, improvement in the coming year. Revenue growth is likely to strengthen with growth in provincial grants and deregulation of most international student fees but will be offset by rising salary and wage costs resulting from the recent renewal of the faculty collective agreement, which provided more significant compensation increases in consideration of past salary constraint and pension reform.
The University’s debt is expected to rise strongly in the coming years with rising capital investment, though the timing and pace of debt growth remain somewhat uncertain. DBRS expects the debt-to-full time equivalent (FTE) ratio to rise to $11,700 in 2018–19 from $10,337 in 2017–18 and potentially reach $14,000 per FTE by 2020–21.
RATING DRIVERS:
Concordia’s ratings are solidly placed at “A,” and DBRS expects the ratings to remain stable through the medium term. A positive rating action could be taken if there is a meaningful improvement in financial risk metrics, improvement in the provincial tuition and funding framework, an upgrade of the Province’s rating, or some combination thereof. While unlikely, a negative rating action could be taken if the operating outlook deteriorates significantly and new borrowings significantly exceed current expectations.
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 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.
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