Morningstar DBRS Confirms University of Ottawa at AA (low) With Stable Trends

DBRS Limited (Morningstar DBRS) confirmed the Issuer Rating and Senior Unsecured Debt credit rating of the University of Ottawa (uOttawa or the University) at AA (low). Both trends are Stable.

KEY CREDIT RATING CONSIDERATIONS
The University's credit profile is supported by its strong reputation as a leading research-intensive university, breadth of program offerings, and status as Canada's largest bilingual university. The University also benefits from its location in Canada's capital, historically sound operating results, and relatively strong balance sheet. The credit ratings remain constrained by the current challenging operating environment, which can be characterized by the restricted funding and tuition framework and more restrictive federal immigration policy negatively affecting international student mobility.

CREDIT RATING DRIVERS
Although unlikely, a positive credit rating action depends on a combination of sustained improvement in financial risk assessment metrics and an improvement in Morningstar DBRS' assessment of one or more critical rating factors. A negative credit rating action could arise from a significant and sustained deterioration in operating results or from a material increase in debt.

CREDIT RATING RATIONALE
During 2023-24, uOttawa posted a surplus of $29.8 million, compared with a deficit of $4.9 million in the prior year. Total revenue (including unrealized gains (losses) on investments) improved 8.5% compared with the prior year, mainly driven by investment income, other revenue, unrestricted donations, and student housing. Total expenses grew by 6.0% largely driven by increases in salaries and benefits, scholarships and financial aid, maintenance, repairs, utilities, and taxes.

On a fully consolidated basis, consistent with the financial statements, the University projects a surplus of $11.5 million in 2024-25. Following robust growth in enrolments over the past few years, the University now aims to optimize its revenue base by changing the student mix, focusing on attracting students to courses that have capacity and offering more hybrid course options rather than focusing on increasing overall student numbers. The University also has several initiatives under way to identify new revenue sources (program revitalization, efforts toward international student recruitment, and diversification, among others), reduce expenses, and enhance budget and financial management.

Capital expenditures decreased by 25.2% to $108.1 million during 2023-24, and the University projects higher capital expenditures of $178.9 million during 2024-25 primarily because of investments related to deferred maintenance and the new Advanced Medical Research Centre.

The University's debt declined slightly to $655.9 million during 2023-24, or $11,888 per full-time equivalent (FTE), after having increased in F2020 following the $300 million debt issuance. The increase in debt reduced borrowing flexibility within the current credit rating category. However, the University does not plan to access any additional external financing in the near to medium term. In the absence of new debt, Morningstar DBRS projects the debt-to-FTE ratio will gradually decline over the coming years and approach $11,200 per FTE by 2026-27.

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 uOttawa, the CRFs are considered in the order of importance contemplated in the methodology.

(B) Weighting of FRA Factors
In the analysis of uOttawa, 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 uOttawa, 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 (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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