Morningstar DBRS Confirms University of Ottawa at AA (low) with a Stable Trend

DBRS Limited (Morningstar DBRS) confirmed the Issuer Rating and Senior Unsecured Debt rating of the University of Ottawa (uOttawa or the University) at AA (low). Both trends are Stable.

KEY CREDIT RATING CONSIDERATIONS
The University’s credit profile is supported by its strong reputation as a leading research-intensive university, breadth of program offerings, and status as Canada’s largest bilingual university. The University also benefits from its location in Canada’s capital, historically sound operating results, and relatively strong balance sheet. The ratings remain constrained by the current challenging operating environment, which can be characterized by the constrained funding and tuition framework and the potential impact of uncertain international relations on international student mobility.

uOttawa has historically reported several years of strong operating results; however, it posted a successive deficit of $4.9 million, compared with a deficit of $76.2 million (largely attributable to an investment loss) in the prior year, which was largely driven by growth in expenses that outpaced that of revenues.

On a fully consolidated basis, consistent with the financial statements, the University projects a surplus of $32.4 million in 2022-23. The University anticipates a cumulative adverse financial impact of $75.0 million in 2023–24 with the ongoing tuition freeze for domestic students. Following robust growth in enrolments over the past few years, the University now aims to optimize its revenue base by changing the student mix, focusing on attracting students to courses that have capacity and offering more hybrid course options rather than focusing on increasing overall student numbers. The University also has several initiatives under way to identify new revenue sources (program revitalization, efforts toward international student recruitment, and diversification, among others) and to enhance budget and financial management.

Capital expenditures increased to $144.6 million during 2022–23, and the University projects $115.9 million during 2023–24 mainly because of investments related to deferred maintenance and the new Advanced Medical Research Centre.

The University’s debt dropped slightly to $658.0 million, or $12,093 per FTE, after having increased in F2020 following the debt issuance of $300 million. The increase in debt reduced borrowing flexibility within the current rating category. However, the University does not plan to access any additional external financing in the near to medium term. In the absence of new debt, Morningstar DBRS projects the debt-to-FTE ratio will gradually decline over the coming years and remain below $13,000 per FTE through 2024–25.

CREDIT RATING DRIVERS
A positive credit rating action depends on a combination of sustained improvement in financial risk assessment metrics and an improvement in Morningstar DBRS' assessment of one or more critical rating factors.

A negative credit rating action could arise from a significant and sustained deterioration in operating results or from a material increase in debt.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental, Social, or Governance factors that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (July 4, 2023) https://dbrs.morningstar.com/research/416784/dbrs-morningstar-criteria:-approach-to-environmental,-social,-and-governance-risk-factors-in-credit-ratings.

BUSINESS RISK ASSESSMENT (BRA) AND FINANCIAL RISK ASSESSMENT (FRA)
(A) Weighting of BRA Factors
In the analysis of uOttawa, the BRA factors are considered in the order of importance contemplated in the methodology.

(B) Weighting of FRA Factors
In the analysis of uOttawa, the FRA factors are considered in the order of importance contemplated in the methodology.

(C) Weighting of the BRA and the FRA
In the analysis of uOttawa, the BRA carries greater weight than the FRA.

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

Morningstar DBRS applied the following principal methodology: Rating Public Universities (May 17, 2023) https://dbrs.morningstar.com/research/414148/rating-public-universities.

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

A description of how Morningstar DBRS analyzes corporate finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.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-DBRS@morningstar.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.

Morningstar DBRS 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. Morningstar DBRS trends and credit ratings are under regular surveillance.

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

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