Morningstar DBRS Confirms Brock University at A (high) with a Stable Trend

DBRS Limited (Morningstar DBRS) confirmed the Issuer Rating and Senior Unsecured Debentures rating of Brock University (Brock or the University) at A (high) with Stable trends.

KEY CREDIT RATING CONSIDERATIONS
The credit ratings are underpinned by the University's position as a midsize comprehensive university in the Province of Ontario (rated AA (low) with a Positive trend by Morningstar DBRS), supportive enrolment outlook, and relatively strong financial risk assessment (FRA) metrics. The credit ratings remain constrained by the current challenging operating environment, which can be characterized by the constrained funding and tuition framework and the potential impact of uncertain international relations on international student mobility.

In 2022–23, Brock reported a consolidated deficit of $5.7 million, including a one-time gain related to the sale of the Hamilton Campus and other assets. Excluding the gain on sale of assets, this equates to a deficit of $6.1 million, a decline from the prior-year deficit of $0.5 million. The deterioration was driven by a very modest decline in enrolment combined with stable operating grants and frozen domestic tuition fees, which resulted in expense growth outpacing that of revenue. Despite weaker-than-planned enrolment, Brock continues to demonstrate strong and responsive management of University finances.

Brock’s second-trimester financial update covers the period ended December 31, 2023, and points to a balanced result on a funding basis, or a deficit of $14.3 million on a consolidated financial statement basis. In addition to the $4.0 million mitigation target established in the budget, an additional $0.9 million of mitigation is a result of forecast enrolment and other revenue shortfalls. Revenues continue to be hampered by weaker-than-budgeted international enrolment, with student fees estimated to be down $9.5 million, or 4.6%, relative to the budget, as delays in processing study permits continue. Brock realized savings of $5.3 million on personnel costs through ongoing cost mitigation strategies with an additional mitigation target of $0.9 million for 2023–24.

In 2022–23, capital spending amounted to $31.7 million, a decline of 44% from the prior year, as Brock made investments in several facilities and information-technology-related projects. In the near term, the capital and related projects budget does not consist of any major projects but is focused on information-technology projects and facilities management (including deferred maintenance projects).

University debt totalled $255.4 million, or $11,999 per full-time equivalent (FTE), at April 30, 2023, a year-over-year decline of 3.0%, largely reflecting the amortization of existing debt and the repayment of $20.7 million outstanding on a mortgage loan. Interest coverage declined modestly from 3.0 times (x) to 2.7x in 2022–23 owing to weaker operating results. In the absence of additional debt, debt-per-FTE is expected to decrease modestly to approximately $11,285 in 2024–25 as the University refinances and upsizes an existing loan set to mature in June 2024.

CREDIT RATING DRIVERS
A positive credit rating action, though unlikely, depends on a combination of sustained improvement in financial risk assessment metrics and an improvement in Morningstar DBRS' assessment of one or more critical rating factors.

A negative credit rating action could arise from a significant and sustained deterioration in operating results or from a material increase in financial leverage.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental, Social, or Governance factors that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (January 23, 2024), https://dbrs.morningstar.com/research/427030.

BUSINESS RISK ASSESSMENT (BRA) AND FINANCIAL RISK ASSESSMENT (FRA)
(A) Weighting of BRA Factors
In the analysis of Brock, the BRA factors are considered in the order of importance contemplated in the methodology.

(B) Weighting of FRA Factors
In the analysis of Brock, the FRA factors are considered in the order of importance contemplated in the methodology.

(C) Weighting of the BRA and the FRA
In the analysis of Brock, the BRA carries greater weight than the FRA.

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

Morningstar DBRS applied the following principal methodology:

Rating Public Universities (May 17, 2023), https://dbrs.morningstar.com/research/414148

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

A description of how Morningstar DBRS analyzes corporate finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/397223.

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-DBRS@morningstar.com.

The credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

Morningstar DBRS had access to the accounts, management and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

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

Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available on dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.

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