DBRS Morningstar Confirms Ratings on Brock University at A (high), Stable Trends

DBRS Limited (DBRS Morningstar) confirmed the Issuer Rating and Senior Unsecured Debentures rating of Brock University (Brock or the University) at A (high) with Stable trends. The ratings are underpinned by the University’s position as a midsize comprehensive university in the Province of Ontario (Ontario or the Province; rated AA (low) with a Stable trend by DBRS Morningstar), supportive enrolment outlook, and relatively strong financial risk assessment (FRA) metrics. The current provincial policy environment adds an element of uncertainty to the medium-term operating outlook while plans for increased debt will erode flexibility within the current credit profile.

In 2018–19, Brock recorded a surplus of $15.9 million, up from $12.0 million the previous year. This equates to 4.5% of total revenues. Higher-than-planned enrolment and lower-than-planned spending contributed to the strong performance. For 2019–20, Brock has planned for a modest deficit of $0.3 million on a consolidated basis. Brock budgeted total revenues to contract by 0.3% year-over-year (YOY), anticipating that enrolment growth and increases in international student fees would offset the impact of the Province’s 10% reduction in domestic tuition fees and a reduction in other revenues. The University also budgeted total expenditures to grow by 4.5% in 2019–20, driven by rising personnel costs. Brock expects to maintain a balanced budget over the medium term as management aims to keep expense growth in line with revenue growth. Brock is planning for full-time equivalent (FTE) growth averaging 4.0% through 2021–22 supported by a record first-year intake in 2018–19, ongoing retention efforts, and the introduction of new programs.

At April 30, 2019, total debt was $144.2 million, down by 1.7% YOY. When combined with modest enrolment growth, debt per FTE declined to $7,019 from $7,225 in 2017–18. As Brock undertakes borrowing to fund ancillary capital projects, total debt will likely reach $154.1 million in 2019–20, or approximately $7,200 per FTE. Over the medium term, debt will likely reach $211.6 million by 2021–22, or approximately $9,200 per FTE with average annual enrolment growth accelerating to 4.0% over the next three years. DBRS Morningstar expects that FRA metrics could deteriorate but will remain within a range supportive of the existing ratings.

RATING DRIVERS
A positive rating action is unlikely through the medium term given the rising debt burden and a constrained operating environment. A negative rating action could arise from a material deterioration in FRA metrics beyond that already anticipated by DBRS Morningstar.

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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