DBRS Morningstar Confirms Simon Fraser University’s Ratings at AA (low) with Stable Trends

DBRS Limited (DBRS Morningstar) 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, a low and stable debt burden, and its favourable location in the Metro Vancouver region. The ratings are constrained by limited expendable financial resources and large deferred maintenance needs, as well as by limited fee-setting autonomy and funding growth.

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 Coronavirus Disease (COVID-19) pandemic-related health concerns. Initial registration data for the fall term suggests enrolment is likely to meet the university's earlier budget and academic plans. SFU's pre-pandemic 2020–21 budget forecasts a DBRS Morningstar-adjusted surplus from operations of $32.5 million, excluding net restricted endowment contributions of $18.9 million.

SFU anticipates moderate operating deficits over the next two fiscal years, although it projects small surpluses on a consolidated basis. The University may consider cost mitigation strategies, including savings in utilities and lower discretionary spending (travel, conferences, etc.), among other measures, to offset some financial pressures.

SFU named Dr. Joy Johnson (previously vice president, research and international) as its new president and vice chancellor, effective September 1, 2020. DBRS Morningstar expects the strategic priorities and direction to evolve under her leadership but the fundamental financial outlook to remain unchanged.

The University’s debt burden as at March 31, 2020, was $156.3 million ($5,793 per full-time equivalent (FTE) student), as the provincial moratorium on external financing remains in place. SFU’s rolling five-year capital plan is largely unchanged, although the University will likely revise the scope and/or timelines of some capital projects to address pandemic-related delays. Provincial funding for deferred maintenance has risen in recent years and supported SFU’s efforts to address critical needs. The University will borrow $73 million from the Provincial government's student housing loan program, resulting in debt rising above $8,000 per FTE in the medium term. The planned increase in debt will not lead to downward pressure on the ratings.

RATING DRIVERS
A negative rating action could result from a significant and sustained rise in SFU’s debt burden beyond DBRS Morningstar’s current expectations. A positive rating action is unlikely in the near term given a challenging operating outlook.

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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