DBRS Morningstar Confirms Wilfrid Laurier University’s Ratings at “A” with Stable Trends

DBRS Limited (DBRS Morningstar) confirmed the Issuer Rating and Senior Unsecured Debt rating of Wilfrid Laurier University (Laurier or the University) at “A” with Stable trends. Laurier’s ratings are supported by its academic profile, location near Toronto, steady enrolment growth, and stable revenue base. The challenging operating environment and some uncertainty about the direction of provincial policy remain obstacles for all public universities in the Province of Ontario (the Province; rated AA (low) with a Stable trend by DBRS Morningstar). Laurier does have limited operating flexibility as the University seeks to eliminate prior operating budget deficits, which further constrains its ratings.

Laurier has outperformed budget projections in recent years, owing to conservative budgeting, controlled expenses, and increased student intake. In January 2019, the provincial government announced a 10% reduction in domestic tuition fees in 2019–20, to be followed by a tuition freeze in the subsequent academic year. Toward the end of the fiscal year, additional operating pressures arose from the novel Coronavirus Disease (COVID-19) pandemic, which led to a loss of some ancillary revenues (such as residence refunds to students, declines in parking and hospitality revenues, etc.), and additional pandemic-related costs and emergency financial support to students. Subsequently, the University is estimating a deficit of roughly $14 million in 2019–20.

The outlook for 2020 is subject to increased uncertainty. While many students opted for additional courses over the summer, the outlook for the fall term is less certain given ongoing travel restrictions and other pandemic-related health concerns. Based on initial application data and the gradual reopening of the University’s campuses, DBRS Morningstar remains cautiously optimistic about fall 2020 enrolment.

While the pandemic has resulted in near-term uncertainty, the medium-term outlook remains somewhat clouded by provincial policy uncertainty. The Province has yet to provide direction on the tuition fee framework, and significant operating deficits creates some uncertainty for university operating funding.

Laurier’s balance sheet has improved in recent years, as expendable resources have risen and debt has declined, resulting in an improved ratio of expendable resources-to-debt of 41.8% at YE2019 from 2.6% in YE2012. Debt per full-time equivalent student stood at $11,558 at YE2019 and will likely fall to below $10,500, given that there is no planned borrowing over the next few years.

RATING DRIVERS
A positive rating action is unlikely in the near term given the challenging outlook for Laurier and the sector more generally. A negative rating action could result from a sharp increase in debt levels, large and sustained operating losses, or drastic changes in government funding policies.

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.

DBRS Morningstar 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 [email protected].

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

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