DBRS Morningstar Confirms York University at A (high), Stable Trends

DBRS Limited (DBRS Morningstar) confirmed York University’s (York or the University) Issuer Rating and Senior Unsecured Debentures rating at A (high) with Stable trends. York’s strong academic profile, favourable location in the Greater Toronto Area, and healthy operating results support the ratings. The challenging operating environment—including constrained provincial funding and the ongoing tuition freeze for domestic students—remains a challenge for all Province of Ontario (rated AA (low) with a Stable trend by DBRS Morningstar) universities.

York’s operating performance has historically remained sound, led by an enhanced financial and budgetary framework over the years. Over the past five years, consolidated surpluses have averaged 6.8% of revenues. In 2021–22, York's reported surplus stood at $29.3 million or 2.3% of revenues. This was down from $75.1 million, or 6.0% of revenues in the prior year, as expenses outpaced revenue growth during the year.

The University's 2022–23 budget projected a deficit of $45.6 million (on an operating-fund basis); although, year-to-date performance is ahead of budget expectations. Based on the multiyear plan, an operating-fund deficit balance (after transfers to the capital fund) of $31.3 million is forecast for 2023–24, with a surplus projection of $8.2 million for 2024–25. The deficit projections reflect initial costs for the Markham, Ontario, campus construction; spending related to the return to campus; research intensification efforts; and use of departmental carry-forwards. DBRS Morningstar believes although operating outlook is likely to be pressured given the University's forecast for declining enrolments, these deficits will be manageable with results likely to be better on a consolidated basis.

For 2022–23, York is planning for a -5.2% decline in full-time equivalent (FTE) enrolments pressured by the substantial visa processing delays that continue to impact international enrolments, in addition to some lingering impacts of lower first-year intakes in prior years. The University expects a reversal in the declining trend in 2023–24 with a growth of +4.5%, with an average increase of 4.1%, over a four-year period, as international enrolments rebound with the resolution of travel- and visa-related issues.

York continues to make progress on some of its major capital projects, including the development of the new Markham campus. The projects will largely be funded through existing debt, donations, and internal reserves. In the absence of any further debt issuance and as enrolments grow in the outer years of the budget forecast, DBRS Morningstar projects debt per FTE to gradually decline and trend under $12,000 by F2026.

RATING DRIVERS
A positive rating action could occur if debt per FTE trends substantially downward, in the absence of material new debt and provided there are no negative impacts to other critical or financial risk factors. At the current rating category, a downgrade is not contemplated as there is ample flexibility to withstand any pressures from a deterioration in operating outlook, a sharp increase in debt levels, or deterioration in the provincial rating.

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.

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.

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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