DBRS Morningstar Changes Trend on Nipissing University to Stable from Negative, Confirms Rating at BBB

DBRS Limited (DBRS Morningstar) confirmed the Issuer Rating of Nipissing University (Nipissing or the University) at BBB and changed the trend to Stable from Negative. 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 Positive 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 return to a Stable trend reflects improved operating results and an expectation that the University’s enrolment and operating outlook has improved for the near term.

Supported by one-time government funding, the University reported a consolidated surplus of $1.7 million, or 1.9% of revenues in 2022–23, its first surplus in 10 years (excluding a one-time gain on sale of assets recognized in 2017–18). This was a material improvement over the originally budgeted deficit of $3.2 million, despite declining enrolment.

For 2023–24, Nipissing is budgeting for a balanced position on a consolidated basis. This reflects the expectation that a decline in one-time government grants will be offset by an increase in tuition revenues, largely driven by higher international enrolment. Meanwhile, expenditure growth is expected to be relatively contained. Management has indicated the year-to-date financial performance is tracking close to budget.

Over the medium term, Nipissing’s multi-year budget points to ongoing consolidated surpluses of $1.4 million in 2024–25 and $0.6 million in 2025–26. This assumes no increase in government grants, but does assume some increase in domestic tuition fees through the tuition anomaly framework and domestic enrolment along with further growth in international enrolment. DBRS Morningstar believes the strategy to grow international enrolment entails considerable execution risk, given Nipissing’s limited track record in this area, ambitious targets, and ongoing geopolitical risks. While the multi-year outlook has improved from past years, it will take several years of surpluses to improve financial flexibility. Absent increased government funding and/or tuition flexibility, this improvement in operating performance is unlikely to be sustained.

Nipissing's overall debt level remains 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. Nipissing's total debt stood at $38.2 million as at April 30, 2023, which equates to $8,508 per full-time equivalent student (FTE). With no further debt anticipated, DBRS Morningstar projects a decline in debt to $35.2 million by 2025. Assuming another year of strong enrolment growth, this would point to debt of $7,027 per FTE by 2024–25. Owing to improved operating results and budgetary outlook, Nipissing's liquidity position has improved.

CREDIT RATING DRIVERS
A positive rating action could arise from increased confidence that the improvement in operating results can be sustained, the rebuilding of balance sheet flexibility, and/or improved access to internal or external liquidity. A material deterioration in financial risk assessment factors and/or reduction in available liquidity could lead to a negative rating action.

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/416784 (July 4, 2023).

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

DBRS Morningstar applied the following principal methodology:
-- Rating Public Universities (May 17, 2023; https://www.dbrsmorningstar.com/research/414148).

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.

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 credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit 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 credit 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 credit ratings are under regular surveillance.

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

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