DBRS Morningstar Confirms Concordia University’s Ratings at “A,” Stable Trends

DBRS Limited (DBRS Morningstar) confirmed Concordia University’s (Concordia or the University) Issuer Rating and Senior Unsecured Debt rating at "A." All trends are Stable. The ratings reflect Concordia's academic profile and the high level of support and oversight in post-secondary education exercised by the Province of Québec (rated AA (low) with a Stable trend by DBRS Morningstar). Ratings also reflect ongoing budgetary pressures amid an increasingly challenging operating environment, and rising debt.

The University's credit profile had been improving prior to the Coronavirus Disease (COVID-19) pandemic. However, the pandemic has resulted in broad-based deterioration of Concordia's financial risk profile, driven by an increasingly challenging operating environment, deteriorating medium-term operating outlook, and increasing debt. While these factors will erode ratings flexibility, DBRS Morningstar believes there is buffer within the current ratings to absorb anticipated pressures without resulting in a downward rating action.

In 2020–21, Concordia reported a consolidated deficit of $21.0 million—an improvement over the $31.3 million loss in the prior year. Although Concordia demonstrated spending prudence, expense growth continued to outpace revenues.

For 2021–22, the University is forecasting an operating deficit of $17.2 million, which includes an estimated $7.2 million in pandemic-related costs and loss of ancillary revenues (F2020 actual: $5.0 million; F2021 actual: $23.8 million). For fall 2021, total registrations declined slightly (-0.9%) driven by a lower first year intake and ongoing adverse domestic demographic trends.

Operating budget deficits will likely linger over the medium term. In the absence of material new provincial funding, Concordia plans to address any deficits through a combination of cost savings, reserve drawdowns, and debt. Concordia has indicated that it will access debt for both strategic investments and to fund a portion of projected operating deficits over the medium term. This differs from the practice at most other DBRS Morningstar-rated universities where debt financing is only used for capital purposes. DBRS Morningstar estimates that University-supported debt-to-full-time equivalent could increase to approximately $20,000 by F2024 based on an average enrolment growth of 1% over this period. However, Concordia has indicated to DBRS Morningstar that actual capital spend—and university-supported debt financing—will likely be lower than forecast, and the University will continue to prioritize long-term financial sustainability.

RATING DRIVERS
The ratings are placed solidly in the current "A" rating category. DBRS Morningstar could consider changing the trends to Positive from Stable if the University is able to demonstrate effective deficit-reduction strategies, rebuild expendable resources as calculated by DBRS Morningstar, and if debt growth is meaningfully lower than expected over the medium term. A combination of a weakened outlook on funding and tuition frameworks, sustained deterioration in operating results, and increased debt levels materially beyond current expectation may prompt a negative rating action.

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).

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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