Morningstar DBRS Confirms Credit Ratings on Carleton University at AA (low), Changes Trends to Negative

DBRS Limited (Morningstar DBRS) confirmed both the Issuer Rating of Carleton University (Carleton or the University) and the credit rating on its Senior Unsecured Debentures at AA (low) and changed the trends to Negative from Stable.

KEY CREDIT RATING CONSIDERATIONS
The Negative trends reflect the sustained deterioration in operating performance with the University now anticipating continued deficits over the next five years driven by the restrictive funding and tuition framework and recent changes to federal immigration policy, which negatively affects international student enrolment. The credit ratings remain supported by Carleton's position as a leading comprehensive university in Canada with an improving research profile, large expendable resources, and a manageable debt burden. However, operating results will likely remain pressured over the medium term as the University seeks to bridge the structural operating budget deficits through a multiyear base budget adjustment and reserve drawdown strategy.

CREDIT RATING DRIVERS
In the absence of improvement in one or more financial risk assessment metrics, a credit ratings downgrade could occur over the next 12 to 18 months. Conversely, a restoration of the Stable trend would be dependent on Morningstar DBRS' increased confidence that the University will demonstrate a sustained improvement in one or more financial risk assessment factors.

A credit ratings upgrade is unlikely in the near term; however, an upgrade would be based on a combination of improved critical risk or financial risk assessment factors.

CREDIT RATING RATIONALE
For 2024-25, the University has indicated that the operating budget deficit is now expected to be $10.7 million compared with the initial estimate of $26.2 million. On a consolidated basis, the University anticipates a deficit of around $23.0 million driven by one-time expenses related to a workforce adjustment strategy. For 2025-26, the University projects an operating budget deficit of $23.4 million, largely driven by a softer outlook for international student intakes along with the continued freeze on domestic tuition. Carleton projects a 9.0% annual decline in international enrolments through 2029-30 as a result of the federally imposed student visa caps and related uncertainty, partly offset by domestic growth, resulting in a modest average total enrolment decline of 0.8% over the forecast period. Based on the forecast for declining international enrolment, the University has presented operating budget deficits in its multiyear budget forecast. A combination of base budget cuts and drawdown of existing reserves will be employed to help offset these projected shortfalls. Morningstar DBRS notes that these forecasts are based on conservative assumptions; if international enrolments exceed projections, operating deficits could be smaller over the forecast horizon. Morningstar DBRS also notes that the University budgets investment income conservatively, which leaves some room for outperformance if returns are favourable in any given year.

As at April 30, 2024, Carleton's long-term debt totalled $257.7 million, or $9,306 per FTE student, down from $9,736 per FTE student in the prior year. In the absence of material new issuance and as debt amortizes, Morningstar DBRS projects that debt per FTE will decline to less than $9,000 by 2027-28, slightly slower compared with prior expectations.

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 (May 16, 2025) https://dbrs.morningstar.com/research/454196

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

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

(C) Weighting of the CRFs and the FRA factors
In the analysis of Carleton University, the CRFs carries greater weight than the FRA factors.

Notes:
All figures are in Canadian dollars unless otherwise noted.

Morningstar DBRS applied the following principal methodology:

Rating Public Universities (May 5, 2025)
https://dbrs.morningstar.com/research/453421

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 (May 16, 2025)
https://dbrs.morningstar.com/research/454196

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.

For more information on Morningstar DBRS' policy regarding the solicitation status of credit ratings, please refer to the Credit Ratings Global Policy, which can be found in the Morningstar DBRS Understanding Ratings section of the website: https://dbrs.morningstar.com/understanding-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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