DBRS Upgrades Université du Québec à Montréal to “A” with Stable Trends

DBRS Limited (DBRS) upgraded the Issuer Rating and Senior Unsecured Debentures rating of the Université du Québec à Montréal (UQÀM or the University) to “A” from A (low). All trends remain Stable. At the time of the last review, DBRS noted that upward rating pressure was likely if the University returned to balance, the debt burden continued to decline and the operating environment improved with sustained reinvestment through a modernized funding framework. The upgrade reflects that these conditions have been satisfied, including an upward revision to DBRS’s assessment of the adequacy of government funding and tuition fees for Québec institutions (business risk assessment factor). Financial risk assessment (FRA) metrics also improved as UQÀM returned to balance earlier than expected and as debt continued to decline.

The ratings continue to incorporate DBRS’s assessment of UQÀM’s importance to the Université du Québec network and the Province of Québec (the Province; rated A (high), Stable by DBRS), the high level of provincial support to the institution, the University’s relatively low debt burden and a weak enrolment outlook and the absence of expendable resources as measured by DBRS.

During 2017–18, the University recorded a consolidated surplus of $3.1 million or 0.6% of revenues, after recording deficits in each of the preceding three fiscal years, as a strong increase in government grants drove overall revenues up by 3.6%, outpacing spending growth of 2.5%. Within the operating fund (non-consolidated), the University recorded a small surplus of $0.3 million, representing a positive variance against the Plan to Return to Balance with the Ministry of Education and Higher Education, which had authorized a $1.9 million deficit.

The 2018–19 revised budget is balanced within the operating fund, an improvement over the initial budget because of higher-than-expected enrolment. The budget also incorporates the updated funding formula, which is moderately positive for UQÀM. While the University continues to expect enrolment declines through the planning horizon, these forecasted declines appear less significant than the prior year’s estimate and the initial budget. However, DBRS believes that the operating budget will remain roughly balanced in the coming years as a result of modest funding gains; a continued focus on spending discipline; and efforts to recruit more students, including a greater share of international students, over which UQÀM will have greater fee-setting autonomy after provincial policy changes.

The University’s debt burden is considered low for the ratings and continues to decline, to $5,354 per full-time-equivalent student in 2017–18 from $5,800 the prior year. Incorporating projected enrolment declines, the debt burden is expected to remain low and stable at roughly $5,400 as a result of continued amortization of existing debt. No new borrowing is anticipated. The University has no expendable resources as measured by DBRS, but the University has access to lines of credit for short-term financing needs.

RATING DRIVERS:
The trends on the ratings are Stable. Further ratings improvement is considered unlikely over the medium term but could be caused by a combination of an upgrade to the provincial rating, a reversal of weak enrolment trends and significant further improvement in FRA metrics. While also considered unlikely, the ratings could experience downward pressure if the University undertook significant unexpected borrowing or if operating performance weakened notably on a sustained basis.

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.

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