Morningstar DBRS Confirms Nipissing University's Issuer Rating at BBB, Maintains Stable Trend

DBRS Limited (Morningstar DBRS) confirmed the Issuer Rating of Nipissing University (Nipissing or the University) at BBB with a Stable trend.

KEY CREDIT RATING CONSIDERATIONS
Nipissing's credit profile is supported by the institution's relatively low debt burden and significant financial support provided by the Province of Ontario (rated AA with a Stable trend by Morningstar DBRS). While Morningstar DBRS is encouraged by the reinstatement of Nipissing's external credit facility, the University's still-limited liquidity, reliance on one-time provincial operating grants, and medium-term refinancing risk limit any credit ratings improvement.

CREDIT RATING DRIVERS
A positive credit rating action could arise from Morningstar DBRS' increased confidence that the improvement in operating results can be sustained; the rebuilding of balance sheet flexibility; and/or improved access to internal or external liquidity. A material deterioration in financial risk assessment factors and/or reduction in available liquidity could lead to a negative credit rating action.

CREDIT RATING RATIONALE
Nipissing reported a consolidated surplus of $3.5 million in 2023-24, or 3.7% of revenues, its second consecutive surplus. This compares favourably with the original balanced budget, supported by rising international enrolment and unplanned one-time government grants.

For 2024-25, Nipissing is budgeting for a consolidated surplus of approximately $0.9 million, as rising enrolment is anticipated to offset the impact of lower government grants. Management has indicated that the YTD financial performance is tracking slightly behind budget but is still on track for a small surplus. Top-up funding from the Ministry of Colleges and Universities is expected to offset the impact of lower-than-planned international enrolment.

For the medium-term, Nipissing's multi-year budget points to consolidated surpluses of $1.0 million in 2025-26 and $1.3 million in 2026-27. This assumes an increase in government grants for nursing and base funding, as well as rising domestic and international enrolment. While the multi-year outlook has improved from past years, it will be difficult to sustain absent a permanent increase in government funding and/or tuition flexibility. In addition, should international enrolment fail to materialize as planned, it would likely necessitate further expenditure restraint on part of the University, or it risks slipping back into deficit.

Nipissing's overall debt level remains low in relation to its other Morningstar DBRS-rated peers, although with no sinking fund, there remains considerable refinancing risk in 2027-28 when the majority of Nipissing's debt comes due. Nipissing's total debt, including a guaranteed student centre loan, stood at $36.9 million as at April 30, 2024, which equates to $7,748 per full-time equivalent (FTE) student. With no further debt anticipated, Morningstar DBRS projects a decline in debt to $33.9 million by 2025-26.

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) https://dbrs.morningstar.com/research/437781

CRITICAL RATING FACTORS (CRFs) AND FINANCIAL RISK ASSESSMENT (FRA)

A) Weighting of CRFs
In the analysis of Nipissing University, the CRF are considered in the order of importance contemplated in the methodology.

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

C) Weighting of the CRFs and the FRA
In the analysis of Nipissing University, 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 06, 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 following methodology has also been applied:

Morningstar DBRS Criteria: Approach to ESG 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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