DBRS Morningstar Confirms Wilfrid Laurier University at “A,” Stable Trend

DBRS Limited (DBRS Morningstar) confirmed the Issuer Rating and Senior Unsecured Debt rating of Wilfrid Laurier University (Laurier or the University) at “A” with Stable trends. Laurier’s ratings are supported by its academic profile, location near Toronto, steady enrolment growth in recent years, and stable revenue base. The challenging operating environment—including constrained provincial funding and the ongoing tuition freeze for domestic students—remains a challenge for all Province of Ontario (Ontario or the Province; rated AA (low) with a Stable trend by DBRS Morningstar) universities. Further constraining Laurier’s rating is its limited operating flexibility as it seeks to eliminate structural operating budget deficits.

The management has indicated that consolidated 2020–21 results are expected to be better than initially budgeted with a smaller-than-expected deficit. The anticipated results are largely supported by the various cost containment initiatives and better than expected international enrolment with higher international tuition rates, which helped to mitigate the adverse impact from the tuition freeze.

Laurier does not prepare its budget on a consolidated basis and hence it is not directly comparable with audited financial statements. On an operating budget basis the 2021–22 budget projects a deficit of $2.9 million to be offset using any prior-year reserves. The University continues to explore opportunities to improve cost efficiency and generate additional revenues.

The University expects to resume partial on-campus learning in fall 2021, and transition to full campus learning by January 2022. DBRS Morningstar believes operating pressures may persist through the near term given complicated travel and visa rules, and vaccine efficacy against new Coronavirus Disease (COVID) variants among other pandemic-related concerns.

In June 2021, the Province approved operating funding for the University's Milton, Ontario, campus. The campus will be spread across 41 hectares of land, which has been donated to the University by the town of Milton. Based on preliminary plans, Laurier expects to commence operations on the Milton campus with a class of 200 students in September 2024 and add more than 2,000 students over the next decade. The University does not plan to issue debt for the first building but may consider debt financing to fund campus growth over the long term.

Laurier’s total debt outstanding at YE2020 was $215.3 million, down from $216.9 million the prior year reflecting the amortization of existing debt. Based on Laurier's latest enrolment forecast and debt amortization, and assuming no debt issuance, DBRS Morningstar projects debt per full-time equivalent will decline to slightly below $10,000 by F2023 from $10,517 in F2021.

RATING DRIVERS
DBRS Morningstar does not expect the ratings to shift materially given a deterioration in Laurier's financial risk metrics and the challenging operating environment. A positive rating action could occur if operating results revert to a surplus on a sustained basis as well as the absence of material new debt for the Milton campus. Conversely, a negative rating action could result from large and sustained operating losses, a sharp increase in debt levels, or materially adverse changes in government funding policies.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

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

The principal methodology is Rating Public Universities (May 5, 2021; https://www.dbrsmorningstar.com/research/377955), which can be found on dbrsmorningstar.com under Methodologies & Criteria. Other applicable methodologies include the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (February 3, 2021; https://www.dbrsmorningstar.com/research/373262).

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 additional 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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