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 credit ratings. The credit ratings remain constrained by the current challenging operating environment, which allows limited revenue flexibility despite rising costs, as well as a somewhat uncertain outlook for enrolments.

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 5.6% of revenues. However, operating results continue to somewhat soften with a reported surplus of $20.8 million or 1.6% of revenues for 2022–23 down from $29.3 million, or 2.3% of revenues in the prior year, as expenses outpace revenue growth.

The University's 2023–24 budget projected a deficit of $67.9 million (on an operating-fund basis). Based on the multiyear plan, an operating-fund deficit balance (after transfers to the capital fund) of $42.7 million is forecast for 2024–25, with a surplus projection of $15.8 million for 2025–26. The deficit projections reflect initial costs for the Markham campus and spending related to accelerating the University’s academic priorities, as well as research intensification efforts in line with the University's plan to focus on advancing its strategic priorities and simultaneously to incorporate a degree of conservatism by budgeting for enrolment contingencies. The University anticipates full-time equivalent (FTE) enrolments to increase by 2.4% in 2023–24, supported by a growth of 3.7% in domestic FTE enrolments, while international enrolments are expected to continue to remain soft with an anticipated decline of 3.5%.

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 or a sharp increase in debt levels.

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/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 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 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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