DBRS Morningstar Confirms Ratings on Queen’s University at AA, Stable Trends

DBRS Limited (DBRS Morningstar) confirmed the Issuer Rating and Senior Unsecured Debt rating of Queen’s University (the University or Queen’s) at AA. Both trends are Stable. The ratings reflect the University’s exceptional academic profile, strong student demand, and effective management practices, which have translated into positive operating results and a strong balance sheet despite the ongoing Coronavirus Disease (COVID-19) pandemic. The credit profile is further supported by the University’s advancement capabilities, resulting in one of the largest endowments among DBRS Morningstar-rated public universities and will provide the University with additional flexibility to withstand a challenging operating environment.

Similar to other universities, the coronavirus pandemic significantly affected the University’s operations and prompted it to exercise strict cost control measures to offset revenue pressures. With cost management (capital and other expense deferrals, hiring delays, etc.), Queen’s is now projecting a small operating fund surplus of $1.4 million in F2021, which is an improvement over previously budgeted deficit of $24.0 million that was presented in May 2020. DBRS Morningstar anticipates that better-than-expected tuition revenues and positive investment returns will offset deterioration in ancillary revenues.

The University’s 2021–22 operating budget was recently approved by the board in May 2021. The budget is balanced after a $40.1 million drawdown from reserves (particularly, departmental carryforwards). Based on vaccine rollout plans, the University expects to resume on-campus learning in fall 2021. DBRS Morningstar recognizes that considerable uncertainty may linger around student mobility over the next few years, led by complicated travel and visa rules, ongoing or potential coronavirus waves across countries, and the implementation of vaccination plans.

However, the University has significant financial flexibility to respond to near-term pressures without jeopardizing its long-term outlook. The University continues to benefit from (1) strong ongoing demand, (2) prudent management, (3) a robust balance of expendable resources, and (4) a responsive budget model that allows faculties and shared service units to respond to changing financial circumstances. DBRS Morningstar expects the University's operations and financial results to recover quickly once the situation stabilizes. DBRS Morningstar will look to early indications of fall 2021 enrolment and any potential return to on-campus activities that support an improvement in ancillary operations as signs that the operating outlook has stabilized.

As at April 30, 2020, total debt was $392.7 million, or $13,905 per full-time equivalent (FTE). In the absence of material new borrowing, DBRS Morningstar expects the debt-per-FTE ratio will decline to approximately $11,500 by 2023–24 as existing debt amortizes.

RATING DRIVERS
DBRS Morningstar expects the University’s ratings to remain stable through the medium term based on its strong financial ratios, stable academic profile, and demonstrated ability to withstand short-term operating pressures. A negative rating action could result from a significant and sustained deterioration in operating results, leading to considerable balance sheet deterioration.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

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

The principal methodology is Rating Public Universities (May 5, 2021; https://www.dbrsmorningstar.com/research/377955), which can be found on dbrsmorningstar.com under Methodologies & Criteria. Other applicable methodologies include the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (February 3, 2021; https://www.dbrsmorningstar.com/research/373262).

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 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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