Morningstar DBRS Confirms York University Credit Ratings at A (high), Maintains Stable Trends

DBRS Limited (Morningstar DBRS) confirmed York University's (York or the University) Issuer Rating and its Senior Unsecured Debentures rating both at A (high). The trends on both credit ratings remain Stable.

KEY CREDIT RATING CONSIDERATIONS
The credit ratings are supported by York's strong academic profile, favourable location in the Greater Toronto Area, and considerable financial flexibility. Morningstar DBRS notes that the current operating environment, given the constrained funding and tuition frameworks and changes to federal international student targets, remains a challenge for all public universities in the Province of Ontario (Ontario or the Province; rated AA with a Stable trend by Morningstar DBRS). York has a history of labour disruptions that have led to a temporary softening of enrolment prospects in the past, and the latest labour dispute could add to enrolment challenges.

CREDIT RATING DRIVERS
Although unlikely given the current operating challenges, a positive credit rating action would be dependent on improvement to critical risk factors, including York's academic profile and financial risk metrics.

At the current credit rating category, a downgrade is not contemplated as the University has ample flexibility to withstand any pressures from a deterioration in operating outlook or a material increase in debt levels.

CREDIT RATING RATIONALE
York's operating performance has remained sound, led by an enhanced financial and budgetary framework over the years. However, after several years of consistent surpluses, the University reported a deficit of $78.5 million, or -5.9% of revenues, in 2023-24, as expenses substantially outpaced revenue growth and the University remained focused on strategic investments including the new Markham Campus.

Multiyear plan projections have weakened further compared with last year given the challenging operating environment the sector has been facing. Based on the multiyear plan, the 2024-25 budget projects a deficit of $132.0 million (on an operating-fund basis after transfers to the capital fund), with a deficit of $39.9 million for 2025-26 and a surplus projection of $13.4 million for 2026-27. The deficit projections reflect substantial enrolment contingencies to offset enrolment challenges resulting from the visa cap as well as impacts of the labour disruption, which may lead to lower enrolments, along with higher wages from negotiated settlements. Although the operating outlook is likely to be pressured given the University's forecast for declining enrolments, Morningstar DBRS believes these deficits will be manageable given the University's considerable balance sheet flexibility.

In the absence of any further debt issuance and as enrolments grow in the outer years of the budget forecast, Morningstar DBRS projects debt per full-time equivalent to gradually decline and trend under $12,000 by F2028.

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 (CRF) AND FINANCIAL RISK ASSESSMENT (FRA)
(A) Weighting of CRFs
In the analysis of York University, the CRF factors are considered in the order of importance contemplated in the methodology.

(B) Weighting of FRA Factors
In the analysis of York University, 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 York 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 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 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 https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.

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