DBRS Morningstar Confirms University of Ontario Institute of Technology’s Ratings at A (low), Stable Trends

DBRS Limited (DBRS Morningstar) confirmed the University of Ontario Institute of Technology’s (the University or Ontario Tech) Issuer Rating and Series A Senior Unsecured Debentures (the Debentures) rating at A (low). Both trends are Stable. In recent years, the University’s credit profile has been supported by a strengthening academic profile, ongoing student demand for its science, technology, engineering, and mathematics (STEM) program offerings, positive operating results, and debt reduction. However, the ratings are constrained by Ontario Tech's limited financial flexibility as represented by DBRS Morningstar's calculation of expendable resources. In addition, the challenging operating environment and provincial policy uncertainty remain obstacles for all public universities in the Province of Ontario (Ontario or the Province; rated AA (low) with a Stable trend by DBRS Morningstar).

Despite recent operating pressures arising from the Coronavirus (COVID-19) pandemic, Ontario Tech generated positive consolidated results in 2020-21 (surplus of $15.1 million) mainly driven by strict spending control and revenue growth from higher-than-anticipated enrolment and additional government grants. In March 2021, the provincial government announced new targeted funding for universities it considered most severely affected by the pandemic. Ontario Tech received $4.8 million in additional, temporary operating funding under this new targeted funding. (See DBRS Morningstar's commentary titled, "Ontario Provides Relief Funding for Severely Affected Universities.")

The University anticipates balanced operating budgets through the near to medium term as campus facilities have gradually re-opened and with the resumption of international student travel. While international enrolment continues to grow, the University has noted a decline in domestic undergraduate intake. The latter will adversely affect Ontario Tech’s enrolment projections over the medium term as this smaller cohort moves through the academic system.

The University’s debt burden remains the highest among DBRS Morningstar-rated Ontario universities at $19,900 per full-time equivalent (FTE) student, although the circumstances surrounding Ontario Tech’s debt burden remain unique in the Ontario context. The Province supports a large share of the University’s annual debt-servicing costs through a restricted debt-servicing grant. While the legal obligations rest with the University, this arrangement effectively results in approximately one fifth of its debenture debt being serviced through its general operations (e.g., unrestricted operating grants, tuition revenue). Following the addition of $25.0 million new long-term debt in F2022 and based on Ontario Tech's most recent enrolment forecast for the current year (November 24, 2021), DBRS Morningstar believes that debt per FTE ratio will remain elevated at more than $20,000 over the next few years, before gradually declining with debt amortization.

RATING DRIVERS
DBRS Morningstar does not expect the ratings to shift materially in the near term. However, sustained positive operating results and debt reduction, together with favourable resolution of operating and policy uncertainty, could lead DBRS Morningstar to consider changing the trend to Positive. Though unlikely, DBRS Morningstar could lower the rating if there is a significant and sustained deterioration in operating outlook and, thereby, the University's financial risk assessment.

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/377882), 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).

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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