DBRS Confirms Simon Fraser University at AA (low), Stable Trend

DBRS Limited (DBRS) confirmed Simon Fraser University’s (SFU or the University) Issuer Rating and Senior Unsecured Debentures rating at AA (low) with Stable trends. The ratings are supported by SFU’s solid academic profile as a leading comprehensive university in Canada and in the Province of British Columbia (B.C. or the Province; rated AA (high) with a Stable trend by DBRS), a relatively low debt burden and a favourable catchment area in the growing Metro Vancouver region. The ratings are constrained by a relatively low level of expendable financial resources and large deferred maintenance needs, as well as by limited fee-setting autonomy and funding growth.

In 2017–18, the University recorded a DBRS-adjusted operating surplus of $46.2 million. After accounting for restricted endowment contributions, the University reported a consolidated surplus of $65.3 million. The 2018–19 budget projects a DBRS-adjusted surplus of $18.2 million, which DBRS expects will be readily achievable considering stronger-than-anticipated tuition revenues, driven in part from higher levels of international enrolment. International enrolment has reached an all-time high of 20.6%, which is among the highest of DBRS-rated institutions. The high level of international enrolment speaks to SFU’s strong academic profile globally and its location in the metro Vancouver area, but also presents potential downside risks tied to specific geographies, particularly for faculties with the highest shares of international enrolment.

The University’s debt burden at year-end 2017-18 was stable at $155.0 million ($5,788 per full-time equivalent student), as the provincial moratorium on external financing remained in place. The University’s rolling five-year capital plan has not changed materially from the previous iteration, but most projects remain dependent upon provincial capital funding. Provincial funding for deferred maintenance has risen notably in recent years and has been supporting the University’s efforts to address critical needs. The University has commenced the first phase of a student housing project that will add 480 new beds and residence amenities to the Burnaby campus using a private investor financing model with no debt recourse to SFU. The University has applied to a new provincial student housing loan program introduced in B.C.’s 2018 budget, which is likely to increase SFU’s debt burden in the next two years but is not expected to impact the ratings.

RATING DRIVERS
The trend on the ratings is Stable and the credit profile is well positioned in the current rating category. The ratings could experience upward pressure with materially increased balance sheet flexibility in the form of a higher levels of expendable resources, and if the fee and funding environment became more supportive. The ratings could experience downward pressure if SFU’s debt burden rose well above current expectations, or if enrolment and operating results deteriorated significantly on a sustained basis.

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

The principal methodology is Rating Public Universities, which can be found on dbrs.com under Methodologies.

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.com.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

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