DBRS Morningstar Confirms Trent University at “A” with a Stable Trend

DBRS Limited (DBRS Morningstar) confirmed the Issuer Rating and Senior Unsecured Debentures rating of Trent University (Trent or the University) at “A” with Stable trends. The ratings reflect Trent’s academic profile as a primarily undergraduate university in the Province of Ontario (rated AA (low) with a Stable trend by DBRS Morningstar), robust enrolment growth, and a low and declining debt burden that provides the University with ample flexibility to endure the current operating challenges resulting from the Coronavirus Disease (COVID-19) pandemic.

In 2019–20, Trent reported a consolidated surplus of $9.1 million, or 4.6% of revenues. This was down from a $13.8 million surplus recorded a year earlier. Like all universities, Trent was affected by the coronavirus pandemic that began in March 2020, which required a shift to remote learning, resulting in increased costs and foregone revenues. However, with just six weeks remaining in the fiscal year, the impact was very manageable.

For 2020–21, Trent’s board approved budget projected a balanced operating position, after the use of a modest amount of prior-year appropriations set aside for contingencies. Trent also reintroduced its multiyear budgeting framework, which pointed to operating surpluses of $2.3 million in 2021–22 and $7.0 million in 2022–23. The budget was prepared prior to the onset of the coronavirus pandemic and approved by the board in late March 2020. As a result, it did not incorporate downside risks related to the impact of travel restrictions on enrolment, lost ancillary revenues, and increased costs for sanitation, personal protective equipment, and the shift to remote learning.

Based on Trent's latest financial update, management now anticipates an operating deficit in 2020–21 ranging between $4.1 million and $8.2 million. Full-time equivalent (FTE) enrolment is now projected to exceed budget targets, although revenues are expected to fall somewhat short of budget because of the enrolment mix. While some strategic investments have been deferred, and one-time in-year budget reductions were implemented, the University has incurred increased pandemic-related expenses. In addition, reduced on-campus activity has meant that ancillary operations are operating at a loss. The University is in the process of preparing its 2021–22 budget, which will incorporate an updated multiyear recovery plan.

At April 30, 2020, Trent’s long-term debt totalled $80.0 million, down by $1.2 million, or 1.5%, from the prior year. This equates to a debt of $7,730 per FTE, down from $8,416 per FTE in 2018–19 because of continued strong enrolment growth. The University has no plans for material new borrowing over the near term. As a result, DBRS Morningstar expects the debt per FTE to trend lower, falling to $7,414 in 2020–21 and approaching $7,100 by 2022–23. Debt remains low for the assigned ratings, which provides the University with flexibility to withstand the impact of a weaker operating environment and declining expendable resources.

RATING DRIVERS
Trent University is well placed within its current rating category. While unlikely, upward pressure on the ratings is dependent on a sustained recovery in operating performance, increased balance sheet flexibility in the form of expendable resources, and improvement in DBRS Morningstar's assessment of one or more critical rating factors. A negative rating action could arise from a significant and sustained deterioration in operating results and/or from a material increase in debt.

ESG CONSIDERATION
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.

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

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577