DBRS Morningstar Confirms York University’s Ratings 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. York’s strong academic profile, favourable location in the Greater Toronto Area, and healthy operating results support the ratings. The challenging operating environment—including constrained provincial funding and the ongoing tuition freeze for domestic students—remains a challenge for all Province of Ontario (Ontario or the Province; rated AA (low) with a Stable trend by DBRS Morningstar) universities.

York’s operating performance has historically remained strong, led by an enhanced financial and budgetary framework, growing international student revenues, and the successful containment of cost escalation below revenue growth. Despite the Coronavirus Disease (COVID-19) pandemic, York's reported surplus for 2020–21 remained sound at $75.1 million, or 6.0% of revenues compared with 9.9% of revenues in 2019–20.

The University's 2021–22 budget projected a deficit of $68.6 million (on an operating fund basis), although year-to-date performance is ahead of budget expectations. The improved outlook relative to budget is driven by expectations of cost savings similar to the prior year. Based on the multiyear plan, an operating fund deficit balance (after transfers to the capital fund) of $48.1 million is forecast in 2022–23, and a deficit of $47.9 million in 2022–23. The deficit projections reflect initial costs for the Markham campus construction, spending related to return to campus, research intensification efforts, and enrolment contingencies in line with the University's plan to focus on advancing its strategic priorities. DBRS Morningstar believes that operating outlook remains largely favourable and these deficits will be manageable with results likely to be better on a consolidated basis.

Over the medium to longer term, the University anticipates a gradual return to normal operations and largely expects to meet its domestic as well as its international enrolment targets. However, DBRS Morningstar recognizes that considerable uncertainty still lingers around student mobility led by ongoing coronavirus waves across countries, complicated travel and visa rules, and vaccine efficacy against the new coronavirus variants.

York continues to make progress on some of its major capital projects, including the development of a new Markham campus (construction commenced during 2020–21). The projects will largely be funded through existing debt, donations, and internal reserves. The University has considerable balance sheet flexibility, with $696.9 million of expendable resources (as of April 30, 2021) or 115.9% 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 under $12,000 over the medium term.

RATING DRIVERS
A positive rating action could occur if debt per full-time equivalent continues to trend downward in the absence of material new debt and provided there are no negative impacts to other critical or financial risk factors. At the current rating category a downgrade is not contemplated as there is ample flexibility to withstand any pressures from a deterioration in operating outlook, a sharp increase in debt levels, or deterioration in the provincial rating.

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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