DBRS Morningstar Confirms Simon Fraser University at AA (low), Stable Trend

DBRS Limited (DBRS Morningstar) confirmed Simon Fraser University’s (SFU or the University) Issuer Rating and Senior Unsecured Debt rating at AA (low) with Stable trends. The ratings reflect SFU’s solid academic profile as a leading comprehensive university in Canada, its historically low debt burden, and its favourable location in the Metro Vancouver region. The ratings are constrained by large deferred maintenance needs as well as by limited fee-setting autonomy and funding growth.

For 2020–21, SFU recorded a consolidated surplus of $53.5 million compared with $61.9 million in the prior year. The DBRS Morningstar-adjusted operating surplus was stable at $41.3 million, representing a healthy 5.0% of revenues, bringing the five-year average to 5.5%. SFU's budget forecasts a DBRS Morningstar-adjusted surplus from operations of $34.9 million, excluding net restricted endowment contributions of $19.4 million for 2021–22. The University may use one-time budget-balancing options, including prior-year surpluses and/or internal reallocation of funds, if required, given lingering uncertainties around international enrolments and projected deficits from ancillary operations.

With the return to campus beginning Fall-Term 2021, preliminary numbers indicate registrations for domestic and international students are expected to be stronger than anticipated, with actual enrolments for 2021–22 to exceed undergraduate-funded targets by 5%. Initial registration data for the fall term suggests enrolment is likely to meet the University's budget and academic plans. The higher activity on campus also suggests some revenue upside in ancillary operations. Over the medium term, SFU does not expect a meaningful shift in the mix of domestic and international students. It anticipates that enrolment growth in domestic students, as well as in international students from Canadian high schools and through college transfers, will help offset some of the uncertainty surrounding international undergraduate enrolments from Fraser International College on account of the Coronavirus Disease (COVID-19) pandemic.

Following the utilization of the Province of British Columbia’s (rated AA (high) with a Stable trend by DBRS Morningstar) commercial paper borrowing program to fund Phase 2 of the University’s student housing project, SFU’s debt burden increased by $42.1 million to $197.1 million, with debt per full-time equivalent (FTE) rising to $7,228 as at F2021 compared with $5,745 in the previous year—in line with DBRS Morningstar's prior expectations. DBRS Morningstar projects the debt-per-FTE ratio to peak around $8,400 per FTE in 2021–22 when the loan is fully drawn and gradually decline thereafter to $8,258 per FTE in 2023–24.

RATING DRIVERS
A negative rating action could result from a significant and sustained rise in SFU’s debt burden beyond DBRS Morningstar’s current expectations. A positive rating action is unlikely in the near term, given the outlook for increasing debt and a challenging operating environment.

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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