DBRS Confirms Brock University at A (high), Changes Trend to Negative

DBRS has today confirmed the A (high) rating of Brock University’s (Brock or the University) Senior Unsecured Debentures, but has changed the trend to Negative from Stable. Brock’s credit profile continues to be supported by a moderately low debt burden, manageable pension and post-employment benefit obligations, and sound management practices. However, DBRS notes that the University is planning to undertake new borrowing to finance various capital projects, which has the potential to boost debt significantly and materially impair the credit profile given very challenging operating conditions, the large budget shortfall and weak coverage ratio faced by the University.

The University’s operating position continued to weaken in 2008-2009 as it posted a $16.1 million deficit. Enrolment growth of 1% and higher tuition fees contributed to a 3.8% increase in revenues year-over-year, although this only provided a partial offset to inflationary salary and benefit costs which drove up expenditures by almost 9%. Brock’s total debt rose slightly in 2008-2009, leading to debt per full-time equivalent (FTE) of $7,484. However, recent maturities have since reduced debt to near $6,900 per FTE. At this level, Brock’s debt burden ranks fourth lowest among DBRS-rated universities.

In 2009-2010, Brock’s operating performance is expected to remain weak as the provincially regulated tuition framework and slow enrolment growth limits the University’s ability to raise revenues. Despite efforts to keep spending relatively flat, a sizeable deficit is expected nonetheless, as inflationary salary pressures continue to outpace revenue growth, which significantly reduces the University’s financial flexibility. In addition, the University is considering plans to finance its contributions toward certain capital projects with $30 million to $55 million in new debt. DBRS notes that given the size of the operating shortfall in conjunction with very weak interest coverage ratios, a soft enrolment trend and limited expectations for provincial funding relief, additional debt, even at the low end of the range, would likely lead to a rating downgrade. However, should Brock demonstrate significant progress in restoring its operating position before undertaking new debt at the low end of the contemplated range, the credit profile may remain supportive of the current rating, and lead to a restoration of the Stable trend.


Notes:
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 CORPORATE (Public Finance) rating.

DBRS will publish a full report shortly that will provide additional analytical detail on this rating action. If you are interested in receiving this report, contact us at info@dbrs.com.

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