DBRS Morningstar Confirms Ratings on Queen’s University at AA, Stable Trends

DBRS Limited (DBRS Morningstar) confirmed the Issuer Rating and Senior Unsecured Debt rating of Queen’s University (the University or Queen’s) at AA. Both trends are Stable. The ratings reflect the University’s exceptional academic profile, strong student demand, and effective management practices, which have translated into positive operating results and a strong balance sheet. The credit profile is further supported by the University’s considerable endowments.

The University's operations have been significantly affected by the Coronavirus Disease (COVID-19) pandemic. The University has mostly closed its campuses and is delivering its teaching activities online. The summer term will be delivered remotely, while the impact on operations for the fall term is uncertain at this time.

Financial results for 2019–20 and 2020–21 are likely to come under pressure. The University may report considerably weaker operating results for 2019–20 due to investment losses. The outlook for 2020–21 is less clear and will depend on many factors, including investment returns, international and domestic enrolment, the pace of normalization/physical distancing requirements, provincial support, etc.

Notwithstanding this uncertainty, Queen's has significant financial flexibility to respond to near-term pressures without jeopardizing its long-term outlook. The University continues to benefit from (1) exceptional demand, (2) strong management, (3) a robust balance, and (4) a responsive budget model that incents faculties and shared service units to respond to the changing financial circumstances. DBRS Morningstar expects the University's operations and financial results to recover quickly once the situation stabilizes.

The University expects to issue debt in the near term to fund several capital projects. Consequently, DBRS Morningstar expects the ratio of debt-to-FTE to rise above $12,000.

RATING DRIVERS
DBRS Morningstar expects the University’s ratings to remain stable over the medium term based on its strong financial ratios and stable academic profile. A positive rating action is highly unlikely in the current circumstances. However, a negative rating action could result from a significant and sustained deterioration in operating results, leading to significant balance-sheet deterioration.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

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

The principal methodology is Rating Public Universities (May 8, 2019), which can be found on dbrsmorningstar.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@dbrsmorningstar.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.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are resolved within a 12-month period. DBRS Morningstar trends and ratings are under regular surveillance.

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

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

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