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 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 program offerings; positive operating results; and debt reduction. However, Ontario Tech's limited financial flexibility constrains the ratings, as represented by DBRS Morningstar's calculation of expendable resources. In addition, the current operating environment, given constrained funding and tuition frameworks, remains a challenge for all public universities in the Province of Ontario (Ontario or the Province; rated AA (low) with a Stable trend by DBRS Morningstar).

Ontario Tech reported a surplus of $12.4 million in 2021–22 (compared with a surplus of $15.1 million in 2020–21) as revenue growth from higher-than-forecast enrolment and nonrecurring specific government grants mitigated Coronavirus Disease (COVID-19) pandemic-led operating pressures.

The University is forecasting balanced results in 2022–23. Total enrolment is favourable against target. International student demand remains strong; although, visa issues prevented many international students from arriving in Canada, resulting in negative variance from budget (six months ended September 30, 2022). At the same time, first-year international intake declined against target and will likely weigh on total enrolment over the remainder of the course/program. The ongoing freeze on domestic tuition fee increases and intense competition for domestic students could pressure domestic enrolment in the coming years.

In line with DBRS Morningstar's forecast at the time of the previous review, the debt per full-time equivalent (FTE) ratio remains elevated at more than $21,000 per FTE following the addition of $25.0 million bank loan related to the construction of the Shawenjigewining Hall. DBRS Morningstar estimates debt will remain elevated at this level through the near to medium term, before gradually declining thereafter as existing debt amortizes. Although DBRS Morningstar views Ontario Tech’s debt burden as elevated among Ontario universities, it acknowledges the unique circumstances surrounding the debt, reflecting a policy decision made by the Province at the time of establishing the University. While the legal obligation rests with the University and provincial grants flow through Ontario Tech, only about one-fifth of the debenture debt is serviced through general operations of the University.

RATING DRIVERS
DBRS Morningstar notes the ratings are placed comfortably within the current rating category. 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 ratings if there is a significant and sustained deterioration in operating outlook and, thereby, the University's financial risk assessment.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE (ESG) CONSIDERATIONS
There were no Environmental/Social/Governance factor(s) that had a significant or relevant effect on the credit analysis.

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/396929 (May 17, 2022).

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.

A description of how DBRS Morningstar analyzes corporate finance transactions and how the methodologies are collectively applied can be found at: https://www.dbrsmorningstar.com/research/397223/interplay-of-global-corporate-finance-rating-methodologies-when-analyzing-corporate-finance-transactions.

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.

The conditions that lead to the assignment of a Negative or Positive trend are generally 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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