DBRS Morningstar Confirms Ratings on University of Ottawa at AA (low) with Stable Trends

DBRS Limited (DBRS Morningstar) confirmed the Issuer Rating and Senior Unsecured Debt rating of the University of Ottawa (uOttawa or the University) at AA (low). Both trends are Stable. The University’s credit profile is supported by its strong reputation as a leading research-intensive university, breadth of program offerings, and status as Canada’s largest bilingual university. The University also benefits from its location in Canada’s capital, positive operating results, and relatively strong balance sheet. However, the operating environment is likely to remain challenged, given a constrained funding and tuition environment, the emergence of new Coronavirus Disease (COVID-19) variants, and the reintroduction of public health measures.

The University reported a surplus of $41.7 million, or 3.5% of revenue, in 2020-21. This was up from $35.7 million, or 3.1% of revenue, in the prior year. The improvement was largely supported by strong investment returns as well as sound enrolment growth.

On a fully consolidated basis, uOttawa projects a surplus $13.9 million in 2021–22, although the management has indicated that year-to-date performance is ahead of budget expectations. The University anticipates losses of $57.0 million with the ongoing tuition freeze for domestic students and also expects additional impact from lost revenue and increased expenses because of the pandemic. The University has several initiatives under way to identify new revenue sources (program revitalization and efforts toward international student recruitment and diversification, among others) and to enhance budget and financial management. It continues to explore avenues to offset the anticipated loss of ancillary revenue from the pandemic as well as boost budgetary flexibility. Although the medium term outlook is less clear, given the emergence of new coronavirus variants, and reintroduction of public health measures, DBRS Morningstar believes the operating outlook remains largely favourable and the University will meet or exceed budget targets.

The University’s debt declined to $661.9 million, or $12,774 per full-time equivalent (FTE), after having increased in F2020 following the debt issuance of $300.0 million (due 2060). The increase in debt reduced borrowing flexibility within the current rating category. However, the University does not plan to tap into any additional external financing in the near to medium term. In the absence of new debt, DBRS Morningstar projects the debt-to-FTE ratio will gradually decline over the coming years to about $12,000 per FTE in 2023–24.

RATING DRIVERS
A positive rating action is unlikely in the near to medium term given the challenging operating environment. DBRS Morningstar could downgrade the ratings if there is a sustained and significant deterioration in the University’s operating outlook and a materially higher debt burden.

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). 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’s outlooks and ratings are under regular surveillance.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com.

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