DBRS Morningstar Confirms Ratings on York University at A (high), Stable Trends

DBRS Limited (DBRS Morningstar) confirmed York University’s (York or the University) Issuer Rating and Senior Unsecured Debentures rating at A (high) with Stable trends. The ratings are supported by York’s strong academic profile, favourable location in the Greater Toronto Area, and healthy operating results. The challenging operating environment and some uncertainty about the direction of provincial policy remain obstacles for all public universities in the Province of Ontario (rated AA (low) with a Stable trend by DBRS Morningstar). In the past, York has faced several labour disruptions that led to adverse impacts on short- and medium-term enrolment prospects.

Prior to the Coronavirus Disease (COVID-19) pandemic, York’s operating performance had been on a steadily improving trend, led by an enhanced financial and budgetary framework, growing international student revenues, and successfully containing cost escalation below revenue growth. For the year ended April 30, 2020, York reported an adjusted operating surplus of $125.3 million, or 9.9% of revenues.

The University's year-to-date operating performance is ahead of budget expectations and York now forecasts a nearly balanced result in 2020–21. York’s original budget was prepared prior to the pandemic and projected a deficit of $65.0 million in 2020–21, a deficit of $14.1 million in 2021–22, and a surplus of $13.0 million in 2022–23. The improved budget outlook is driven by stronger-than-anticipated growth in international enrolment and some savings on utilities, discretionary spending, and hiring delays.

The medium-term outlook is less clear given ongoing travel restrictions and other pandemic-related health concerns affecting on-premise activities. Nevertheless, the University anticipates a gradual return to normal operations and a roughly balanced budget position over the medium term that will be supported by a resumption of international enrolment growth.

York continues to make progress on some of its major capital projects, including the development of a new Markham campus. The projects will largely be funded through existing debt (including the recently issued Series B Debentures), donations, and internal reserves. The University has considerable balance sheet flexibility, with $688.9 million of expendable resources (as of April 30, 2020), or 114.5% of long-term debt. In the absence of any further debt issuance, DBRS Morningstar projects debt per full-time equivalent to gradually decline and trend slightly under $12,000 over the medium term.

RATING DRIVERS
A positive rating action could occur if operating results remain strong, supported by a resolution of some operating and policy uncertainty as well as the absence of material new debt. Though unlikely, a negative rating action could result from a significant and sustained deterioration in 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 trends 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 the 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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