DBRS Morningstar Confirms the University of Windsor's Ratings at “A” with Stable Trends

DBRS Limited (DBRS Morningstar) confirmed the University of Windsor's (UWindsor or the University) Issuer Rating and Senior Unsecured Debentures rating at “A,” both with Stable trends. The rating confirmations reflect the University’s position as an important regional institution within the Province of Ontario (rated AA (low) with a Stable trend by DBRS Morningstar). The ratings remain constrained by the current challenging operating environment, which allows limited revenue flexibility despite rising costs, as well as visa-processing backlogs and modest balance sheet flexibility. Furthermore, UWindsor demonstrates an above-average dependence on international students. Despite these challenges, DBRS Morningstar acknowledges that University has been able to weather the challenging operating environment in the past, supported by its prudent fiscal management practices and steady enrolment demand.

On an operating-budget basis, the 2022–23 budget projected balanced operating results. The University has indicated that its year-to-date performance remains close to balance, albeit clouded by the volatility in investment returns, and any in year shortfalls will be offset by using one-time reserves.

The University's 2023–24 budget (presented in April 2023) is the third budget prepared using the new budget model. UWindsor projects a balanced budget after providing for an enrolment contingency reserve fund and an extraordinary enrolment offset, as well as transfers to the Strategic Investment Funds (SIFs). The University is budgeting flat full-time equivalent (FTE) enrolment for 2023–24, reflecting modestly lower (-0.1%) undergraduate enrolment that is expected to be offset by an equal growth in graduate enrolment. Over the medium term, the University continues to plan for ongoing enrolment growth although the pace is expected to remain moderate. DBRS Morningstar believes that the University's efforts to increase and diversify international enrolment, develop alternate sources of revenue, and expand and rationalize programs will be important drivers to improve overall financial sustainability in the longer term.

UWindsor has contracted with a private partner through a long-term land lease arrangement for the construction of a new 452-bed residence that is expected to be completed by Fall 2025. The University expects to provide an occupancy guarantee for a term of 30 years with no additional borrowing anticipated. At April 30, 2022, UWindsor's long-term debt totalled $234.7 million, or $14,021 per FTE. In the absence of material new issuance and as debt amortizes, DBRS Morningstar projects that debt per FTE will decline to less than $13,400 by 2024–25.

RATING DRIVERS
A negative rating action could arise from a combination of materially weaker-than-projected enrolment and significantly weakened operating results leading to a sustained deterioration in financial risk metrics. A positive rating action is highly unlikely given the challenging outlook for the sector and the University's elevated debt levels.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors 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.

DBRS Morningstar applied the following principal methodology:
Rating Public Universities (May 5, 2022), https://www.dbrsmorningstar.com/research/396438

The rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

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 rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the rating process for this rating action.

DBRS Morningstar had access to the accounts, management and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

This is a solicited credit rating.

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.

Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies, is available on www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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