DBRS Confirms Trent University at “A” with a Stable Trend

DBRS Limited (DBRS) confirmed the Issuer Rating and Senior Unsecured Debentures rating of Trent University (Trent or the University) at “A” with Stable trends. The ratings reflect Trent’s academic profile as a leading undergraduate university in the Province of Ontario (Ontario; rated AA (low) with a Stable trend by DBRS), robust enrolment growth, a relatively low debt burden and a stable revenue base. The ratings are constrained by a low level of expendable resources, capacity constraints that are likely to limit future growth and significant provincial policy uncertainty that could adversely affect the University’s finances.

Trent has experienced the strongest enrolment gains of any Ontario university in the last three academic years. This has translated into solid operating performance. In 2017–18, the University recorded a consolidated surplus of $14.4 million, or a healthy 7.8% of revenue, supported by 7.2% growth in full-time equivalent (FTE) enrolment. Trent restated its 2016–17 financial statements as a result of material prior-year accounting adjustments, bringing the originally stated 2016–17 surplus ($4.4 million) down to an effectively balanced position.

The 2018–19 budget projects a modest surplus within the University’s operating fund (non-consolidated), and DBRS expects that the University will meet or exceed its budget targets. The budget assumes modest growth in provincial funding; however, the Ministry of Training, Colleges and Universities has yet to release targeted grants or provide guidance on overall funding envelopes. Enrolment growth is tracking at roughly double the budget projections (+6.6% year over year), supporting significant growth in tuition revenue that should mitigate the impact of potential funding adjustments. Barring adverse changes in the operating framework, the multi-year outlook remains favourable, as undergraduate and international enrolment is expected to rise moderately.

Trent’s debt-per-FTE is projected to decline to $7,436 through 2018–19 and to below $7,000 through 2020–21, and there are no plans for material new borrowing. While employee pension liabilities remain relatively large, funding requirements are stable, and Trent is actively considering joining the proposed jointly sponsored University Pension Plan, which would eliminate pension solvency deficit payments.

RATING DRIVERS
DBRS expects the ratings to remain stable over the medium term, reflecting strong operating performance and the flow-through effect of recent enrolment gains. Upward pressure on the ratings could materialize over the medium term if policy uncertainty is resolved without adverse financial impacts, operating performance remains positive and the University builds greater balance sheet flexibility in the form of expendable resources. Downward pressure on the ratings could arise from a significant and sustained deterioration in operating results from adverse policy developments that affect the University’s key revenue sources or from unexpected borrowing.

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 & Criteria.

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.

The full report providing additional analytical detail is available by clicking on the link under Related Documents below or by contacting us at info@dbrs.com.