DBRS Morningstar Confirms the University of Windsor at “A” with a Stable Trend

DBRS Limited (DBRS Morningstar) confirmed the Issuer Rating and Senior Unsecured Debentures rating of the University of Windsor (UWindsor or the University) at “A” with Stable trends. The ratings reflect the University’s position as an important regional institution within Ontario (rated AA (low) by DBRS Morningstar), prudent financial management practices, and gradually improving enrolment outlook, despite a challenging operating environment and some uncertainty about the direction of provincial policy. However, relatively higher dependence on international students presents unique challenges to an institution of UWindsor’s size and academic profile.

The University continues to strive for balanced operations in a challenging operating and policy environment. For 2018–19, UWindsor reported a consolidated deficit of $0.9 million. DBRS Morningstar adjusted its reported results to exclude a $2.7 million noncash unrealized loss on interest rate swaps, resulting in an adjusted surplus of $1.9 million (or 0.5% of revenues), down from $6.4 million in the prior year. UWindsor's interim 2019–20 performance is tracking in line with budget, and DBRS Morningstar anticipates the University to report balanced operations or modest surplus at year end.

The medium-term fiscal outlook is clouded by policy uncertainty, much like other rated universities in Ontario. In addition, international enrolment may face some uncertainty arising from the novel Coronavirus Disease (COVID-19). Taken together, operating performance will likely remain pressured over the short to medium term, although the University has demonstrated willingness to implement aggressive initiatives (compensation cost adjustments, transitionary relief reserves, etc.) to maintain a balanced operating position. DBRS Morningstar expects the University to review and improve its budget processes, explore alternate sources of revenue, and identify additional opportunities for cost efficiencies.

The University appointed Dr. Robert Gordon as the President and Vice Chancellor effective September 1, 2019. DBRS Morningstar does not expect the University’s strategic direction to shift materially, and the University continues to strengthen stakeholder and provincial relations, expanding international outreach and focus on longer term financial sustainability.

The University's adjusted debt (net of $28.1 million trusteed sinking funds) was $186.3 million, or $11,965 per full-time equivalent (FTE), as at April 30, 2019. This is slightly lower than the previous year as existing debt continues to amortize. DBRS Morningstar does not anticipate any new external borrowing by UWindsor in the near to medium term. Assuming modest enrolment growth of 1.0% annually over the next three years, DBRS Morningstar estimates that the debt burden could moderate to approximately $11,361 per FTE in 2021–22, which is consistent with the present rating category.

RATING DRIVERS:
A positive rating action is unlikely in the near term given the stability in UWindsor’s academic profile and relatively higher vulnerability to the challenging operating environment (such as, adverse policy changes or material disruption to international enrolment due to coronavirus). Similarly, a negative rating action is not anticipated in the near term but could arise from a combination of materially weaker enrolment and significantly weakened operating results leading to a sustained deterioration in financial risk metrics.

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.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

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.

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

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