DBRS Morningstar Confirms University of Ottawa at AA (low) with a Stable Trend

DBRS Limited (DBRS Morningstar) confirmed the Issuer Rating and Senior Unsecured Debt rating of the University of Ottawa (uOttawa or the University) at AA (low). Both trends are Stable. The University’s credit profile is supported by its strong reputation as a leading research-intensive university, breadth of program offerings, and status as Canada’s largest bilingual university. The University also benefits from its location in Canada’s capital, historically sound operating results, and relatively strong balance sheet. The ratings remain constrained by the current challenging operating environment, constrained funding and tuition, and visa backlogs.

Following several years of reporting strong operating results, uOttawa posted a deficit of $76.2 million (including $72.6 million unrealized losses on investments) compared with a surplus of $41.7 million in the prior year. The deficit was largely driven by a 3.0% investment loss stemming from global market volatility.

On a fully consolidated basis, consistent with the financial statements, the University projects a surplus of $13.7 million in 2022–23 with year-to-date performance largely in line with budget expectations. The University has conservatively forecast modest enrolment growth (average of 0.8% between 2022–23 and 2024–25), reaching 55,190 full-time equivalents (FTEs) in 2024–25, an increase of 2.3% from 2021–22 driven by international enrolments while domestic enrolments are likely to remain stable. Following robust growth in enrolments over the past few years, the University now aims to optimize its revenue base by changing the student mix, focusing on attracting students to courses that have capacity and offering more hybrid course options rather than focusing on increasing overall student numbers. The University also has several initiatives under way to identify new revenue sources (program revitalization, efforts toward international student recruitment, and diversification, among others) and to enhance budget and financial management. Over the medium term, DBRS Morningstar believes the University will likely meet or exceed budgetary targets.

The University’s debt dropped slightly to $660.0 million, or $12,243 per FTE, after having increased in F2020 following the debt issuance of $300 million. The increase in debt reduced borrowing flexibility within the current rating category. However, the University does not plan to access any additional external financing in the near to medium term. In the absence of new debt, DBRS Morningstar projects the debt-to-FTE ratio will gradually decline over the coming years to below $12,000 per FTE in 2024–25.

RATING DRIVERS
A negative rating action could arise from a significant and sustained deterioration in operating results and/or from a material increase in debt. A positive rating action is unlikely in the near to medium term given the challenging operating environment.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no environmental, social, and governance factors that had a significant or relevant effect on the credit analysis.

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/396929 (May 17, 2022).

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

The principal methodology applicable to the rating is Rating Public Universities (May 5, 2022; https://www.dbrsmorningstar.com/research/396438).

The rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

A description of how DBRS Morningstar analyzes corporate finance transactions and how the methodologies are collectively applied can be found at: https://www.dbrsmorningstar.com/research/397223/interplay-of-global-corporate-finance-rating-methodologies-when-analyzing-corporate-finance-transactions.

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 info@dbrsmorningstar.com.

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.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar trends and ratings are under regular surveillance.

Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies, is available on www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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