Morningstar DBRS Confirms Concordia University's Credit Ratings at "A," Stable Trends

DBRS Limited (Morningstar DBRS) confirmed the Issuer Rating and Senior Unsecured Debt credit rating of Concordia University (Concordia or the University) at "A." All trends are Stable.

KEY CREDIT RATING CONSIDERATIONS
The credit ratings are supported by Concordia's academic profile, responsive financial management, and the high level of oversight in post-secondary education exercised by the Province of Québec (the Province; rated AA (low) with a Stable trend by Morningstar DBRS). The credit ratings are constrained by ongoing budgetary pressures amid an increasingly challenging operating environment and rising debt.

CREDIT RATING DRIVERS
A positive credit rating action, though unlikely, depends on a combination of sustained improvement in financial risk assessment metrics and an improvement in Morningstar DBRS' assessment of one or more critical credit rating factors.

A negative credit rating action could result from a combination of a material deterioration in key financial metrics and critical credit rating factors.

CREDIT RATING RATIONALE
In 2023-24, Concordia reported a consolidated deficit of $21.0 million relative to the $55.2 million shortfall in the prior year. Concordia has demonstrated spending prudence as part of its long-term recovery plan, and as a result, reported a deficit smaller than budgeted.

Beginning in 2024-25, the Province announced that tuition rates for out-of-province students attending English-language universities would be increased and that claw backs from international tuition fees would increase. Morningstar DBRS believes these tuition changes may further pressure Concordia's fiscal capacity and enrolment in the medium term. The University has historically been quite responsive in its financial management to pressures in its operating environment, but absent an improvement in enrolment, revenue flexibility remains constrained and further expenditure restraint may negatively impact the student experience and academic quality.

For F2025, the University has budgeted an operating deficit of $31.0 million. The budget still anticipates a return to balance by 2028-29; however, the interim deficits are expected to be larger than originally forecast considering the changes to the tuition and funding frameworks. The budget includes $8.6 million in savings as well as $35.8 million in adjustments for the year, which is composed of cuts to expenses as well as efforts to increase revenues.

Concordia has indicated that it will access debt for strategic investments and to fund a portion of projected operating deficits over the medium term. This differs from the practice at most other Morningstar DBRS-rated universities where debt financing is used for capital purposes only. Over the medium term, Morningstar DBRS estimates that the University-supported debt per full-time equivalent student could increase to more than $19,000. However, Concordia has indicated to Morningstar DBRS that its actual capital spending -- and University-supported debt financing -- will likely be lower than forecast, and it will continue to prioritize long-term operating and financial sustainability.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factor(s) 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), https://dbrs.morningstar.com/research/437781.

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

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

(C) Weighting of the CRF and the FRA
In the analysis of Concordia, the CRF 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 (September 6, 2024), https://dbrs.morningstar.com/research/439045

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 ratings were initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for these credit rating actions.

Morningstar DBRS had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with these credit rating actions.

These are solicited credit ratings.

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 https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.

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