DBRS Morningstar Confirms Ontario Tech’s Ratings at A (low), Stable Trends

DBRS Limited (DBRS Morningstar) confirmed the University of Ontario Institute of Technology’s (the University or Ontario Tech) Issuer Rating and Series A Senior Unsecured Debentures rating at A (low). Both trends are Stable. The University’s credit profile has improved in recent years with a series of positive operating results, balance sheet improvement, and debt reduction, which suggests a positive rating action may be warranted in the near term. At this time, however, DBRS Morningstar has maintained a Stable trend because of uncertainty about the future adequacy of government funding and tuition fees.

The University continues to report positive results with a surplus of $6.9 million for the year ended March 31, 2019, equivalent to 3.2% of revenue. As in past years, the result exceeded budget expectations because of lower-than-expected spending and unused contingencies.

The University tabled a balanced budget for 2019–20 which required $5.6 million in cost reductions to offset the impact of the provincially mandated 10% reduction in tuition fees for domestic students and various inflationary cost pressures. The budget includes $3.5 million for contingencies and reserves. At mid-year, the University is tracking slightly ahead of plan with positive revenue and expense variances.

Ontario Tech has yet to produce its 2020–21 financial plan, but initial indications suggest that it will aim to present a balanced budget again. With constrained revenue growth, the University’s strategy appears likely to centre on spending restraint, stronger international enrolment, and higher tuition fees for international students.

The University’s debt burden remains the highest among DBRS Morningstar-rated Ontario universities at $22,731 per full-time equivalent (FTE) student, although the circumstances surrounding Ontario Tech’s debt burden remain unique in the Ontario context. The Province of Ontario (rated AA (low) by DBRS Morningstar) supports a large share of the University’s annual debt-servicing costs through a restricted debt-servicing grant. While the legal obligations rest with the University, this arrangement effectively results in only one-third of its total debt being serviced through its general operations (e.g., unrestricted operating grants, tuition revenue, etc.). Ontario Tech’s debt burden will fall steadily over the medium term, because much of the debt is in the form of amortizing debentures and the University does not intend to incur any new indebtedness in the near to medium term. DBRS Morningstar projects that Ontario Tech’s debt burden will fall below $20,000 per FTE in 2021–22.

DBRS Morningstar could change the trend to Positive at the time of its next review if the outlook for operating results and debt reduction remains positive and the uncertainty related to the funding framework is resolved without adverse impacts. Alternatively, DBRS Morningstar could lower the rating if there is a sustained deterioration in operating outlook and a materially higher debt burden.

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.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.

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