DBRS Morningstar Confirms Ratings on Trent University at “A” with Stable Trends

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 (Ontario or the Province; rated AA (low) with a Stable trend by DBRS Morningstar), robust enrolment growth, and a low and declining debt burden. The rating remains constrained by the current challenging operating environment: constrained funding and tuition, the emergence of new Coronavirus Disease (COVID-19) variants, and the subsequent reintroduction of public health measures. Further constraining Trent's ratings is its modest and declining balance sheet flexibility.

In 2020–21, Trent reported a consolidated surplus of $10.9 million, or 5.6% of revenues. The improvement was largely supported by additional pandemic-related funding provided by the government, growth in enrolments, and cost-containment efforts. The University received approximately $6.5 million in nonrecurring and emergency funding from Ontario to offset costs arising from the pandemic in March 2021 (see “Ontario Provides Relief Funding for Severely Affected Universities,” March 22, 2021).

For 2021–22, Trent’s nonconsolidated board-approved budget projects a marginal surplus of $0.4 million in the operating budget after the use of prior-year appropriations set aside for contingencies (approximately $0.7 million), followed by surpluses of $2.4 million and $5.9 million in the subsequent two years. Full-time equivalent (FTE) enrolments are projected to exceed budget targets, increasing by 3.1% to 11,416 FTE compared with a budgeted increase of 1.8%, with growth largely driven by international enrolments and stronger first-year intakes. This is expected to help offset the softness in first-year intakes in the prior year. While the omicron variant and reintroduction of public health measures have caused some concern about the operating outlook, University management has indicated that it expects to achieve enrolment targets and at least maintain balanced results for 2021–22, if not a slight surplus. Furthermore, the University expects that prior-year appropriations will be sufficient to cover any additional pandemic-related costs or lost revenues during 2021–22.

At April 30, 2021, Trent’s long-term debt totalled $79.8 million, or $7,208 per FTE. The University has no plans for material new borrowing over the near term. As a result, DBRS Morningstar expects debt per FTE to trend lower, approaching $6,700 by 2023–24. Debt remains low for the assigned ratings.

RATING DRIVERS
Trent 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 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). 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’s outlooks and ratings are under regular surveillance.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com.

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