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, resilient student demand, and effective management practices, which have translated into positive operating results and a strong balance sheet despite the ongoing Coronavirus Disease (COVID-19) pandemic. The credit profile is further supported by the University’s advancement capabilities, resulting in one of the largest endowments among DBRS Morningstar-rated public universities and will provide the University with additional flexibility to withstand a challenging operating environment.

With cost management (capital and other expense deferrals, hiring delays, etc.), Queen's is projecting an operating fund deficit of $23.1 million in F2022, which is an improvement over the previously budgeted deficit of $40.1 million. Although softness in international enrolment weighed on total revenue, Queen's noted that better-than-anticipated investment returns could provide an offset.

While many activities have now resumed on campus, DBRS Morningstar believes the University's expectation of softer international enrolment growth could potentially weigh on its financial performance through the near to medium term. DBRS Morningstar draws comfort from the University's significant financial flexibility to respond to near-term pressures without jeopardizing its long-term outlook. Queen’s continues to benefit from (1) strong ongoing demand, (2) prudent management, (3) a robust balance of expendable resources, and (4) a responsive budget model that allows faculties and shared service units to respond to changing financial circumstances.

The University intends to present the 2022–23 operating budget for the approval of the Board of Trustees in May 2022. In line with the expectations stated in DBRS Morningstar's prior report, considerable uncertainty persists around student mobility, led by varied travel and visa rules across countries, ongoing or potential surges in coronavirus cases, and the emergence of new viral variants.

As at April 30, 2021, total debt was $388.5 million, or $12,680 per full-time equivalent (FTE). In the absence of material new borrowing, DBRS Morningstar expects the debt-per-FTE ratio will decline to less than $11,300 by 2024–25 as existing debt amortizes.

RATING DRIVERS
DBRS Morningstar expects the University's ratings to remain stable through the medium term, based on its strong financial ratios, stable academic profile, and demonstrated ability to withstand short-term operating pressures. A negative rating action could result from a significant and sustained deterioration in operating results leading to considerable balance sheet deterioration.

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, 2022; https://www.dbrsmorningstar.com/research/396438), 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.

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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