Morningstar DBRS Confirms University of Windsor at "A" with a Stable Trend

DBRS Limited (Morningstar DBRS) confirmed the University of Windsor's (UWindsor or the University) Issuer Rating and Senior Unsecured Debentures rating at "A", both with Stable trends.

KEY CREDIT RATING CONSIDERATIONS
The rating confirmations reflect the University's position as an important regional institution within the Province of Ontario (Ontario or the Province; rated AA (low) with a Positive trend by Morningstar DBRS). The ratings remain constrained by the current challenging operating environment; constrained funding and tuition framework; an uncertain outlook for international enrolments driven by uncertain international relations and visa restrictions; and modest, albeit improving, balance sheet flexibility. Furthermore, UWindsor demonstrates an above-average dependence on international student enrolment. Despite these challenges, Morningstar DBRS acknowledges that University has been able to weather the challenging operating environment over the past few years, supported by its prudent fiscal management practices and steady enrolment demand.

On an operating budget basis, the 2023-24 budget projected balanced operating results. The University has indicated that its year-to-date (YTD) performance is expected to be better than projected on account of higher than anticipated enrolment growth as well as improved investment returns. The University's 2024-25 budget (presented in April 2024) projects an operating budget deficit driven by an anticipated decline in enrolments stemming from a softer outlook for international student intakes as well as an expected normalization of extraordinary enrolments experienced in past years from pandemic-driven deferrals. The budget shortfall will be offset through a range of budget balancing strategies and use of one-time funding allocations from the Province. The University is budgeting a decline of 3.5% in full-time equivalent (FTE) enrolments for 2024-25, reflecting lower (-14.4%) graduate enrolments expected to be partly offset by growth (+1.9%) in undergraduate enrolment. Over the medium term, the University expects enrolments to turn positive, although growing at a moderate pace. The budget continues to provide for the enrolment contingency reserve fund as well as the strategic investment and reserve fund.

As at April 30, 2023, UWindsor's long-term debt totalled $230.4 million, or $13,453 per FTE. In the absence of material new issuance and as debt amortizes, Morningstar DBRS projects that debt per FTE will decline to less than $12,000 by 2027-28.

CREDIT RATING DRIVERS
At the current rating category, a downgrade is not contemplated as there is flexibility to withstand some deterioration in the operating outlook, although downward pressure could arise from a combination of materially weaker-than-projected enrolments and significantly weakened operating results, leading to a sustained deterioration in financial risk metrics.

A positive rating action is unlikely given the challenging outlook for the sector and the University's elevated debt levels.

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 UWindsor, the BRA factors are considered in the order of importance contemplated in the methodology.

(B) Weighting of FRA Factors
In the analysis of UWindsor, 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 UWindsor, 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 (April 15, 2024),
https://dbrs.morningstar.com/research/431203

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/431153.

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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