Morningstar DBRS Confirms University of Toronto's Issuer Rating and Senior Unsecured Debt Rating at AA With Stable Trends

DBRS Limited (Morningstar DBRS) confirmed the Issuer Rating and Senior Unsecured Debentures rating of the University of Toronto (U of T or the University) at AA with Stable trends.

The credit ratings are supported by the University's exceptional academic profile, strong student demand, and effective financial management practices that allow it to navigate the difficult funding and tuition framework and the uncertain outlook on international enrolments with relative ease. The credit profile is further supported by U of T's fundraising capabilities, resulting in one of the largest endowments per full-time equivalent (FTE) student among Morningstar DBRS-rated public universities, which provides the University with additional flexibility to weather the challenging operating environment and is recognized through a positive overlay.

The University reported a strong surplus of $508 million, or 10.9%, in revenue during 2023-24, largely driven by higher investment returns and increased tuition fee revenues. U of T again presented a balanced operating budget for 2024-25. As indicated by the latest statistics from the Ontario Universities' Application Centre, for undergraduate enrolment for Fall 2024 appears to be sound, with total confirmations up by 6.1%, primarily driven by domestic students. The University forecasts average enrolment growth of 1.3% over the next five years. Although the federal cap on international study permits and the continued provincial freeze on domestic tuition fees will constrain revenue growth over the medium term, U of T's academic strength drives a strong demand that will continue to support the operating outlook, enabling the University to meet its budgetary targets.

The strength of U of T's balance sheet and its effective approach to capital budgeting preclude the need for material new borrowings. While there maybe some incremental debt for capital projects in the near term, Morningstar DBRS expects the University's debt burden will remain below $9,000 per FTE student through F2028.

CREDIT RATING DRIVERS
U of T is solidly placed in the current rating category and Morningstar DBRS does not expect the ratings to change, given the University's exceptionally strong financial ratios and prudent fiscal management. Though unlikely, a negative rating action could result from a significant and sustained deterioration in operating results, leading to a substantially weakened balance sheet.

A positive rating action could result from the combination of a significant reduction in the debt-per-FTE ratio and a material improvement in the funding and tuition fee framework.

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 U of T, the CRFs were considered in the order of importance contemplated in the methodology.

(B) Weighting of FRA Factors
In the analysis of U of T, 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 U of T, 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 not 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 did not have 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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