DBRS Morningstar Confirms Université du Québec à Montréal at "A", Stable Trends

DBRS Limited (DBRS Morningstar) confirmed the Issuer Rating and Senior Unsecured Debentures rating of the Université du Québec à Montréal (UQAM or the University) at "A" with Stable trends. The ratings reflect UQAM's importance to the Université du Québec network and the Province of Québec, the high level of provincial support for the University, and a relatively low debt burden. However, the ratings are constrained by a weak enrolment outlook that continues to weigh on operating performance and by the absence of expendable resources, as measured by DBRS Morningstar.

Like all universities, UQAM's operations have been significantly affected by the Coronavirus Disease (COVID-19) pandemic. The University has mostly closed its campuses and is delivering its teaching activities remotely. UQAM now anticipates that most instruction will continue to be delivered online in the fall term.

UQAM has yet to present an updated estimate of 2019–20 results reflecting the impact of the coronavirus pandemic, but DBRS Morningstar expects that these will be roughly in line with the revised September 2019 budget. The revised budget presented in September 2019 had projected the University to be behind its original plan with a deficit of $9.0 million anticipated. The deterioration has been mainly driven by lower than planned enrolment, which challenged UQAM even prior to the coronavirus pandemic. Full-time equivalent (FTE) enrolment is forecast to be 917 students below initial projections, representing a decrease of 3.5% year-over-year (YOY).

The outlook over the medium term is expected to remain challenging. A 2020-21 budget has not been presented and is not expected to be introduced until the fall, in agreement with Québec's Ministry of Education and Higher Education (the Ministry). While past changes to provincial policy and reinvestments have been positive for UQAM and have helped to address underlying cost pressures, the main headwind facing the University con¬tinues to be weak enrolment, driven in part by soft demographic trends for the university-age population within UQAM’s primary catchment area in Québec. University projections indicate that en¬rolment is expected to decline by a cumulative 6.1% from 2018–19 levels through 2020–21. While the University continues to take steps internally to address these pressures, the coronavirus pandemic is expected to further pressure operating results in the near term.

The University’s debt burden is considered low for the ratings at $5,313 per FTE in 2018–19, relatively unchanged from the prior year. With enrolment expected to continue falling in the next two years and no new borrowing anticipated, debt per FTE as measured by DBRS Morningstar may rise to roughly $5,600. The University has no expendable resources as measured by DBRS Morningstar, but the University has access to lines of credit for short-term financing needs.

RATING DRIVERS
The ratings could experience downward pressure if the University undertook significant borrowing and if operating performance weakened notably on a sustained basis, such that debt per FTE exceeds $12,000 and the consolidated operating deficit exceeds 3.0% of revenues (five-year rolling average). A positive rating action is considered unlikely in the current environment.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The principal methodology is Rating Public Universities (May 15, 2020), which can be found on dbrsmorningstar.com under Methodologies & Criteria.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

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 [email protected].

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are under regular surveillance.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].

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