Morningstar DBRS Confirms Wilfrid Laurier University's Issuer Rating and Senior Unsecured Debt Credit Rating at "A" With Stable Trends

DBRS Limited (Morningstar DBRS) confirmed Wilfrid Laurier University's (the University or Laurier) Issuer Rating and Senior Unsecured Debentures credit rating at "A." Both trends are Stable.

KEY CREDIT RATING CONSIDERATIONS
Laurier's credit ratings are supported by its academic profile, location near Toronto, steady enrolments in recent years, and stable revenue base. 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. Additionally, Laurier has limited operating flexibility as it seeks to eliminate operating-budget deficits, which further constrains its credit ratings.

For 2023-24, management has indicated that as a result of growth in overall enrolments and a one-time funding of $11.6 million received from the provincial funding announced earlier this year to support the stabilization of postsecondary institutions, consolidated results are expected to show a surplus position; however, this is largely a one-time occurrence. The University anticipates it will achieve balance in 2024-25 (on an operating-budget basis) after adjusting for austerity measures, reductions across departmental portfolios, and drawdowns from the budgeted stabilization reserve fund. However, the multiyear outlook reflects a substantially weakened medium-term outlook. In the base-case scenario, the operating deficit is projected to be $23.9 million in 2025-26, increasing to $32.4 million in 2026-27 and $43.9 million in 2027-28. The University will employ a range of expense-mitigation and budget-balancing strategies along with the use of prior-year reserves to offset the shortfall in addition to exploring alternate revenue generating opportunities. Morningstar DBRS expects enrolment growth to remain muted during 2026-27, reflecting the impact of the federal government's student visa cap announced earlier this year. The University continues its efforts toward increases to graduate international enrolments, program expansion, and multi-campus development to support overall financial sustainability in the longer term.

Morningstar DBRS notes that the University has implemented budgetary policies over the past few years to gradually replenish its reserves over the long term, exercised spending control to offset budgetary pressures, as well as scaled back on capital plans through deferral of the development of the full-service Milton, Ontario, campus, demonstrating prudent budgetary practices. However, the budgetary outlook remains strained, and the sustained deficits may reduce available expendable resources over the medium term.

Based on Laurier's latest enrolment forecast and debt amortization, and assuming no debt issuance, Morningstar DBRS projects that debt per full-time equivalent will decline to less than $9,500 by F2025 from $9,647 at YE2024, in line with prior expectations.

CREDIT RATING DRIVERS
Morningstar DBRS does not expect the credit ratings to shift materially given Laurier's current financial risk metrics and the challenging operating environment. A negative credit rating action could arise from a combination of factors, including failure to turn around operating results and stabilize enrolments in line with targets on a sustained basis, a sharp increase in debt levels, or materially adverse changes in government funding policies.

A positive credit rating action is not likely; however, Morningstar DBRS could reduce the overlay factor for operating flexibility if the University is able to demonstrate a surplus position on a sustained basis and continues to replenish reserves along with the absence of material new debt for the Milton campus.

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 Factors in Credit Ratings (August 13, 2024) at https://dbrs.morningstar.com/research/437781.

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

(B) Weighting of FRA Factors
In the analysis of Laurier, 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 Laurier, the CRFs carry 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 Factors in Credit Ratings (August 13, 2024), https://dbrs.morningstar.com/research/437781

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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