Morningstar DBRS Confirms University of Ontario Institute of Technology's Credit Ratings at "A" With Stable Trends

DBRS Limited (Morningstar DBRS) confirmed the Issuer Rating of the University of Ontario Institute of Technology (the University or Ontario Tech) and the rating on its Series A Senior Unsecured Debentures at "A." Both trends are Stable.

KEY CREDIT RATING CONSIDERATIONS
The credit ratings are supported by the University's gradually improving academic profile and the ongoing student demand for its science, technology, engineering, and mathematics program offerings. Morningstar DBRS notes that the current operating environment, given the constrained funding and tuition frameworks and changes to federal international student targets, remains a challenge for all public universities in the Province of Ontario (Ontario or the Province; rated AA with a Stable trend).

CREDIT RATING DRIVERS
A positive credit rating action could result from sustained improvement in financial risk assessment metrics and an improvement in Morningstar DBRS' assessment of one or more critical credit rating factors.

A negative credit rating action could result from a combination of a material deterioration in key financial metrics and critical credit rating factors.

CREDIT RATING RATIONALE
Ontario Tech reported a surplus of $6.4 million in 2023-24 (compared with a surplus of $2.6 million in 2022-23) as revenue benefitted from enrolment growth, higher on-campus activity, and a high interest-rate environment that supported investment income. Total expenses increased 9.5% from the prior year owing to higher costs for supplies, salaries and benefits, student aid, financial assistance, and awards.

As of Q2 2024, Ontario Tech's operating forecast is trending toward the original budgeted surplus for 2024-25. Total enrolment increased above target with higher-than-expected numbers of both domestic and international students. The ongoing freeze on domestic tuition fee increases, intense competition for domestic students, and recent international study permit cap may pressure the enrolment outlook in the coming years.

Morningstar DBRS' debt forecast has improved since its previous review, with the debt per full-time equivalent student expected to fall to less than $17,000 following the improved enrolment outlook and amortizing debt. Morningstar DBRS estimates debt will remain elevated through the near to medium term but will gradually decline as existing debt amortizes. Although Morningstar DBRS views Ontario Tech's debt burden as elevated among Ontario universities, it acknowledges the unique circumstances surrounding the debt, reflecting a policy decision made by the Province at the time the University was established. While the legal obligation rests with the University and provincial grants flow through Ontario Tech, only about one-fifth of the debenture debt is serviced through the University's general operations.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/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 Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (August 13, 2024) at https://dbrs.morningstar.com/research/437781.

CRITICAL RATING FACTORS (CRF) AND FINANCIAL RISK ASSESSMENT (FRA)
(A) Weighting of CRF Factors
In the analysis of Ontario Tech, the CRF factors are considered in the order of importance contemplated in the methodology.

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

(C) Weighting of the CRF and the FRA
In the analysis of Ontario Tech, the CRF 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 (September 6, 2024), https://dbrs.morningstar.com/research/439045

Morningstar DBRS credit ratings may use one or more sections of the Morningstar DBRS Global Corporate Criteria (April 15, 2024; https://dbrs.morningstar.com/research/431186), which covers, for example, topics such as holding companies and parent/subsidiary relationships, guarantees, recovery, and common adjustments to financial ratios.

The following methodology has also been applied:

Morningstar DBRS Criteria: Approach to ESG Factors in Credit Ratings (August 13, 2024), https://dbrs.morningstar.com/research/437781

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/431153.

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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