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 strong academic profile, resilient student demand, and effective management practices, which have translated into a consistently strong balance sheet over many years. The credit profile is further supported by the University’s advancement capabilities, which have resulted in one of the largest endowments among DBRS Morningstar-rated public universities and will help to mitigate some of the impacts of a challenging operating environment.

For 2022–23, the University is projecting an operating deficit of $28.2 million (lower than the originally budgeted deficit of $43.5 million) that will be offset through reserve drawdowns. Uncertainty around international student mobility, led by varied travel and visa rules across countries, inflationary cost pressures, provincial constraints on key revenue sources, and significant adverse impacts on investment income from market volatility could weigh on financial risk assessment factors through the near 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.

As at April 30, 2022, total debt was $384.1 million, or $12,149 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 healthy financial risk assessment, stable academic profile, and demonstrated ability to withstand short-term operating pressures. A negative rating action could result from a sustained deterioration in operating results leading to considerable balance sheet deterioration.

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 credit 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/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 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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