Morningstar DBRS Confirms Carleton University's Issuer Rating and Senior Unsecured Debentures at AA (low) With Stable Trends

DBRS Limited (Morningstar DBRS) confirmed Carleton University's (the University or Carleton) Issuer Rating and Senior Unsecured Debentures rating at AA (low). Both trends are Stable.

KEY CREDIT RATING CONSIDERATIONS
The credit ratings are supported by Carleton's position as a leading comprehensive university in Canada with an improving research profile, large expendable resources, and a manageable debt burden. The credit ratings remain constrained by the difficult funding and tuition framework and an uncertain outlook for international enrolments, which are collectively weighing on fiscal performance. Despite these challenges, the University continues to remain relatively well positioned to withstand any pressures from the challenging operating environment.

For 2023-24, the University has indicated that some one-time gains in other income have offset slightly lower-than-anticipated international enrolments; however, it still anticipates a deficit on a consolidated basis driven by inflationary pressures, including higher labour costs. For 2024-25, the University projects an operating budget deficit of $26.2 million, largely driven by a softer outlook for international student intakes along with the continued freeze on domestic tuition fees. The University has projected stable enrolment through 2026-27 with moderate growth (+1.5%) expected in 2027-28, supported by domestic enrolments. Based on the forecast for declining international enrolment, the University has presented operating budget deficits in its multiyear budget forecast. A combination of base budget cuts and existing reserves will be employed to offset the shortfalls and balance the budget. A bounce back in international enrolment in the outer years of the forecast, additional revenues from new program offerings, and higher-than-budgeted domestic enrolments based on the recent strong confirmation trends could result in smaller operating deficits over the forecast horizon.

As at April 30, 2023, Carleton's long-term debt totalled $264.5 million, or $9,736 per full-time equivalent (FTE) student, up from $9,463 per FTE student in the prior year driven by enrolment declines. In the absence of material new issuance and as debt amortizes, Morningstar DBRS projects that debt per FTE will decline to less than $9,000 by 2026-27, largely in line with prior expectations.

CREDIT RATING DRIVERS
The University has limited flexibility in the current credit rating category. A negative credit rating action could arise from a failure to reverse the declining trend in operating results or enrolments on a sustained basis, as well as materially higher-than-planned debt.

While unlikely, a positive credit rating action would be dependent on broad-based improvement in critical risk assessment factors, including Carleton's academic profile and financial risk metrics.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/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) at https://dbrs.morningstar.com/research/427030.

CRITICAL RATING FACTORS (CRFs) AND FINANCIAL RISK ASSESSMENT (FRA)
(A) Weighting of CRFs Factors
In the analysis of Carleton, the CRF factors were considered in the order of importance contemplated in the methodology.

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

(C) Weighting of the CRFs and the FRA
In the analysis of Carleton, the CRFs 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 of 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 following methodology has also been applied:
-- Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (January 23, 2024), https://dbrs.morningstar.com/research/427030

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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