Morningstar DBRS Confirms Brock University at A (high) With a Stable Trend

DBRS Limited (Morningstar DBRS) confirmed the Issuer Rating and Senior Unsecured Debentures credit rating of Brock University (Brock or the University) at A (high) with Stable trends.

KEY CREDIT RATING CONSIDERATIONS
The credit ratings are underpinned by the University's position as a midsize comprehensive university in the Province of Ontario (rated AA with a Stable trend) and its track record of strong fiscal management. The credit ratings remain constrained by the current challenging operating environment, which can be characterized by the restrictive funding and tuition framework and recent changes to federal immigration policy negatively affecting international student enrolment.

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 continued deterioration in financial risk assessment metrics.

CREDIT RATING RATIONALE
In 2023-24, Brock reported a consolidated deficit of $15.8 million, including a one-time gain related to the sale of the Hamilton Campus and other assets. Excluding the gain on sale of assets, this equates to a deficit of $15.9 million, versus the prior-year deficit of $6.1 million. The deterioration was driven by a very modest decline in enrolment combined with stable operating grants and frozen domestic tuition fees, which resulted in expense growth outpacing that of revenue. Despite weaker-than-planned enrolment, Brock continues to demonstrate strong and responsive management of the University's finances through its cost mitigation efforts and establishment of a contingency reserve.

Brock's second-trimester financial update covers the period ended December 31, 2024, and points to a surplus of $0.5 million on a funding basis, or a deficit of $14.8 million on a consolidated financial statement basis. The University was able to successfully meet its mitigation targets without using any of its budgeted contingency reserves. While student fees are estimated to be down $6.9 million relative to the budget, total revenue benefited from higher-than-forecast provincial grants and investment income. The University has also reviewed its hiring processes and is estimating to save $5.3 million in personnel costs during 2024-25.

In 2023-24, capital spending amounted to $13.1 million, a decline of 59% from the prior year, as Brock made investments in several facilities and IT-related projects. As part of its 2022-23 Fiscal Framework, the University had a target capital plan of $14.85 million for 2024-25; however, given the current funding pressures, the 2024-25 budget has allocated $9.10 million for capital projects.

University debt totalled $252.5 million, or $11,942 per full-time equivalent (FTE), at April 30, 2024, a year-over-year decline of 1.1%, largely reflecting the amortization of existing debt. Interest coverage declined modestly to 1.9 times (x) in 2023-24 from 2.7x the prior year, owing to weaker operating results. In June 2024, the University refinanced and upsized a maturing bank loan, which Morningstar DBRS expects to increase the debt-per-FTE figure to approximately $12,119 in 2025-26. Morningstar DBRS expects the debt-per-FTE figure to gradually decline again as the University's debt amortizes.

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

(B) Weighting of FRA Factors
In the analysis of Brock, 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 Brock, 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 (February 3, 2025 https://dbrs.morningstar.com/research/447186) 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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