DBRS Confirms UQAM’s BBB (high) Rating and Stable Trend

DBRS has today confirmed the BBB (high) ratings of Université du Québec à Montréal (UQAM or the University) and the University Finance Trust 2006, the guaranteed funding vehicle for part of the Îlot Voyageur project. The trends are Stable, reflecting continued improvement in budget discipline and management proficiency exhibited by the University and the formalization of support from the Government of Québec (the Province) to insulate UQAM from the financial consequences of the Îlot Voyageur project, as well as servicing a part of the debt assumed for the Sciences Complex. DBRS commends the Province for continuing its support, which has gone a long way toward stabilizing the University’s operating position and has introduced breathing room within its credit profile, but notes that work on the Îlot Voyageur project has been suspended for the past two years and a permanent solution has yet to be agreed to with the developer.

Nevertheless, while UQAM has taken its first steps to financial recovery the path will be a long one. The plan to return to a balanced budget was recently revised and submitted to the ministère de l’Éducation, du Loisir et du Sport, and envisions sizeable operating deficits of about $16.7 million this year and $16.1 million next year, with deficits gradually eliminated by 2015-2016. The plan assumes healthy enrolment growth (between 1.3% and 2.4% per year over the period) and will require continued spending discipline, cooperative efforts from the workforce and development of new education offerings. Notwithstanding UQAM’s efforts and management’s resolve, DBRS notes that a large part of the improvement to date has been driven by the receipt of extraordinary amounts from the Province and that the implementation of the plan will be more challenging, with much of the hard work yet to come. UQAM’s original intention had been to balance its budget by 2013-2014, although a new salary agreement has delayed the date until 2015-2016.

For 2008-2009, enrolment increased by 0.7%, roughly at the median of growth exhibited by the Canadian universities which DBRS rates. Excluding provincial transfers related to the Sciences Complex, UQAM’s recurring net deficit decreased markedly, from $23.1 million to $2.3 million in 2008-2009. Total expenditures declined by 4% on the basis of lower interest costs, as well as lower teaching and support and administrative services costs, although the portion of the savings related to a seven-week teachers’ strike must be repaid to the Province. In 2009, a new labour agreement was negotiated, with a one-time incremental salary adjustment on top of indexation of 2% per year over the next four years. The Province agreed to compensate UQAM for some of the extra costs relating to the new agreement and for the hiring of 135 new professors over five years, starting in 2010.

UQAM reduced its total debt by 23% to approximately $548 million in 2008-2009 after the application of the $88 million received for the Sciences Complex and approximately $66 million in previously-withheld conditional payments from the Province. The lighter debt burden led to a 23% drop in interest payments and has also relieved some pressure on the interest coverage ratio, which increased to 1.5 times from just under 1 time in 2007-2008. Despite the improvement, liquidity remains constrained. Cash balances are modest, and while there was a significant drop in the usage of the line of credit, the line was reduced from $275 million to $100 million in 2009. UQAM expects to fully utilize the line of credit in the near term and has requested a temporary increase in maximum permitted drawings to $130 million to accommodate possible differences in timing of receipts from the Province and operating expenses. DBRS will continue to monitor line usage but expects that given the support received from the Province thus far, a temporary bulge will be granted. UQAM expects to fully pay down the line of credit once additional amounts related to Îlot Voyageur and other payments – which are conditional on the approval of the plan to return to a balanced budget – are received later in 2010, although during the coming years the University expects to draw down the line once again to fund operating shortfalls until it achieves a balanced budget.


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

The applicable methodology is Rating Canadian Universities, which can be found on our website under Methodologies.

This is a Public Finance rating.

The full report providing additional analytical detail is available by clicking on the link under Related Research at the right of the screen or by contacting us at info@dbrs.com.

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