Morningstar DBRS Confirms Ratings on Queen’s University at AA, Stable Trends

DBRS Limited (Morningstar DBRS) confirmed the Issuer Rating and Senior Unsecured Debt rating of Queen's University (the University or Queen's) at AA. Both trends are Stable. The ratings reflect the University's strong academic profile, resilient student demand, and effective management practices, which have translated into a consistently strong balance sheet over many years. The credit profile is further supported by the University's advancement capabilities, resulting in one of the largest endowments among Morningstar DBRS-rated public universities, which could help mitigate some of the impacts of a difficult operating environment.

KEY CREDIT RATING CONSIDERATIONS
For the year ended April 30, 2023, the University reported a small, consolidated surplus of $15.6 million (relative to a deficit of $3.3 million in the prior year). Significant operating headwinds in the form of limited international student mobility, provincial constraints on key revenue sources, and rising costs continue to present challenges through the medium term. Morningstar DBRS understands that the University will use existing reserves and necessary cost containment strategies to offset any unexpected revenue shortfalls and balance the budget. Morningstar DBRS draws comfort from the University's significant financial flexibility to respond to near-term pressures without jeopardizing its long-term outlook. Queen's continues to benefit from (1) strong ongoing demand, (2) prudent financial management, (3) a robust balance of expendable resources, and (4) a responsive budget model that allows faculties and shared service units to respond to changing financial circumstances.

As at April 30, 2023, total debt was $379.5 million, or $12,177 per full-time equivalent student (FTE). In the absence of material new borrowing, Morningstar DBRS expects the debt-per-FTE ratio will decline to less than $11,700 by 2025-26 as existing debt amortizes.

CREDIT RATING DRIVERS
Morningstar DBRS expects the University's ratings to remain stable through the medium term, based on its healthy financial risk assessment, stable academic profile, and demonstrated ability to withstand short-term operating pressures. A negative rating action could result from a sustained deterioration in operating results leading to considerable balance sheet deterioration, or a material erosion of the University's academic profile and student demand for its programs.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a relevant or significant 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 Queen's University, the BRA factors are considered in the order of importance contemplated in the methodology.

(B) Weighting of FRA Factors
In the analysis of Queen's University, 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 Queen's University, 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

Morningstar DBRS credit ratings may use one or more sections of the Morningstar DBRS Global Corporate Criteria (April 15, 2024), https://dbrs.morningstar.com/research/431186, which covers, for example, topics such as holding companies and parent/subsidiary relationships, guarantees, recovery, and common adjustments to financial ratios.

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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