DBRS Morningstar Assigns Rating of BBB, Negative Trend, to Nipissing University

DBRS Limited (DBRS Morningstar) assigned an Issuer Rating of BBB with a Negative trend to Nipissing University (Nipissing or the University). Nipissing’s credit profile is supported by the institution’s relatively low debt burden and significant financial support provided by the Province of Ontario (rated AA (low) with a Stable trend by DBRS Morningstar) through operating grants and extraordinary funding envelopes. The University's small size, program concentration, and medium-term refinancing risk constrain the rating. The Negative trend reflects the University’s ongoing budget imbalances, which continue to erode expendable resources, and lack of available liquidity.

In 2021–22, the University posted a consolidated deficit of $4.5 million, or 5.6% of revenues. The Coronavirus Disease (COVID-19) pandemic resulted in significant operating challenges for the University amid limited flexibility to increase revenues or adjust expenses without drastic reduction in student services and/or programming. Although some revenues returned in 2021–22, longer term headwinds to financial sustainability persist.

For 2022–23, Nipissing’s budget points to a consolidated deficit of $3.2 million. Management has indicated the year-to-date financial performance is tracking close to budget. While tuition fees from domestic enrolment are tracking slightly below budget, this has been mostly offset by higher-than-expected tuition from international students. The University continues to manage expenditures close to budget with higher utility costs being offset by staff vacancies.

For the first time, Nipissing's budget includes a multi-year outlook that points to gradually declining deficits before reaching a near-balanced position by 2024–25 (on an operating fund basis). This assumes no increase in government grants, but does assume increases in domestic tuition fees and further growth in international enrolment. Absent a sustained increased in government funding and/or international enrolment, along with the ability to increase tuition fees for domestic students, the University would likely need to undertake meaningful cost reduction measures or risk the continuation of sizable deficits that could exhaust available liquidity in the near to medium term.

Nipissing's overall debt level is considered low in relation to other DBRS Morningstar-rated peers, although with no sinking fund, there remains considerable refinancing risk in 2027–28, when the majority of Nipissing's debt comes due. With no further debt anticipated, DBRS Morningstar projects a decline in debt to $38.4 million (including guaranteed debt) in 2022–23, further declining to $35.4 million by 2024–25. This equates to debt per full-time equivalent of $8,325 in 2022–23 and $7,687 by 2024–25, assuming relatively stable enrolment. Nipissing's persistently weak operating performance and depletion of expendable resources raise concerns about how liquidity needs will be met beyond 2022–23.

RATING DRIVERS
Absent an improvement in operating performance and access to liquidity, a negative rating action is possible as expendable resources could be exhausted over the near to medium term. A positive rating action would necessitate improved access to internal or external liquidity and/or return to sustainable operating surpluses and rebuilding balance sheet flexibility.

ENVIRONMENTAL, SOCIAL, GOVERNANCE 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/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings (May 17, 2022).

Notes:
All figures are in Canadian dollars unless otherwise noted.

The principal methodology is Rating Public Universities (May 5, 2022), 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.

The full report providing additional analytical detail is available by clicking on the link under Related Documents below or by contacting 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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