DBRS Confirms Simon Fraser University at AA (low) with Stable Trends

DBRS Limited (DBRS) confirmed Simon Fraser University’s (SFU or the University) Issuer Rating and Senior Unsecured Debt rating at AA (low) with Stable trends. The ratings reflect SFU’s solid academic profile as a leading comprehensive university in Canada generally and the Province of British Columbia (the Province; rated AA (high) with a Stable trend by DBRS) particularly, a relatively low and stable debt burden and a favourable location in the growing Metro Vancouver region. The ratings are constrained by a relatively low level of expendable financial resources and large deferred maintenance needs, as well as by limited fee-setting autonomy and funding growth.

In 2018–19, SFU recorded a DBRS-adjusted operating surplus of $49.8 million before restricted contributions to endowments ($23.4 million). Operating results were largely supported by higher tuition fee revenue, which reflects sustained demand for SFU within the international student community. The 2019–20 budget forecasts a DBRS-adjusted surplus from operations of $21.6 million, excluding net restricted endowment contributions of $20.1 million. SFU’s actual performance typically outpaces budget forecasts due to commitments and projects with continued spending in subsequent fiscal years and internally funded capital renewal investments that are presented as surplus.

The University’s debt burden as at YE2018–19 was stable at $155.0 million ($5,738 per full-time equivalent (FTE) student), as the provincial moratorium on external financing remains in place. The University’s rolling five-year capital plan is largely unchanged; however, the University has faced some cost escalation and labour shortages on some of its major projects. Provincial funding for deferred maintenance has risen in recent years and has been supporting the University’s efforts to address critical needs. The University is currently in discussions with the Province to borrow $73 million under the provincial student housing loan program. DBRS expects debt to increase over the medium term to over $8,000 per FTE, but it is not expected to lead to downward pressure on the ratings.

RATING DRIVERS
DBRS expects the ratings to remain stable over the medium term. A positive rating action would require higher levels of expendable resources and a significant improvement in the fee and funding framework. A negative rating action is unlikely at this time but could occur if there were a significant and sustained rise in SFU’s debt burden beyond DBRS’s 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 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 additional analytical detail on this rating action. If you are interested in receiving this report, contact us at info@dbrs.com.

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