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

DBRS Limited (DBRS Morningstar) confirmed the Issuer Rating and Senior Unsecured Debt rating of the University of Ottawa (uOttawa or the University) at AA (low). Both trends are Stable. 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, positive operating results and relatively strong balance sheet.

The University reported a surplus of $91.8 million for the year ended April 30, 2019, which significantly exceeded expectations and was an improvement from the $69.8 million surplus reported in the prior year. The strong result reflects higher tuition fee revenue, primarily from international students, better-than-expected investment income and the various cost control initiatives.

Over the past three years, the University has undertaken a series of initiatives to address fundamental budget imbalances resulting from constrained revenue growth, weakening domestic enrolment, inherent cost pressures and rising capital renewal requirements. The University has pursued new revenue sources, increased international enrolment, implemented various efficiency measures and adopted a new budget model to improve resource allocation and incentives for faculties. Taken together, these initiatives have led to a significant turnaround in the financial outlook for the University and position it well to deal with the recent provincial policy changes, the ongoing domestic enrolment weakness and further provincial policy uncertainties.

The University expects operating results to deteriorate in 2019–20. The narrower operating fund is expected to fall into a modest deficit position, though the overall consolidated result (consistent with audited financial statements) is projected to remain positive at $22.2 million. The weaker result primarily reflects the impact of provincial policy changes and the expectation that investment returns will moderate to more typical levels. Over the medium term, the operating results appear likely to remain weaker than in the recent past.

The University has no major capital projects currently underway but expects to undertake several projects in the coming years to add residence capacity and renew aging facilities. Currently, the scope of the projects and potential debt needs are unclear. In the absence of new debt issuance, DBRS Morningstar projects the debt per full-time equivalent (FTE) ratio to fall to $7,450 in 2019–20 and toward $7,300 in 2020–21.

A positive rating action is unlikely in the near to medium term because of the challenging operating environment. A significant increase in debt, to fund capital requirements, could result in a negative rating action.

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

The principal methodology is Rating Public Universities, which can be found on dbrs.com under Methodologies & Criteria.

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.com.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

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

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