Morningstar DBRS Confirms Credit Ratings on Queen's University at AA, Stable Trends

DBRS Limited (Morningstar DBRS) confirmed the Issuer Rating and Senior Unsecured Debt credit rating of Queen's University (the University or Queen's) at AA. Both trends are Stable.

KEY CREDIT RATING CONSIDERATIONS
The credit ratings reflect the University's strong academic profile, resilient student demand, and effective management practices, which have translated into a consistently strong balance sheet over many years. The credit profile is further supported by the University's advancement capabilities, resulting in one of the largest endowments among Morningstar DBRS-rated public universities (the largest per full-time equivalent student (FTE)), which could help mitigate some of the impacts of a difficult operating environment.

CREDIT RATING DRIVERS
A positive credit rating action could stem from a combination of a material decline in debt and improvement in one or more critical rating factors. A negative credit rating action could result from considerably reduced balance sheet flexibility arising from a sustained deterioration in operating results.

CREDIT RATING RATIONALE
For the year ended April 30, 2024, the University reported a consolidated surplus of $76.2 million (up from a surplus of $15.6 million in the prior year). For 2024-25, the University is projecting an operating deficit of $40.8 million. However, the University budgets investment income conservatively, which leaves room for outperformance if returns are favourable in any given year. Despite concerns related to international student mobility, domestic demand for the University's programs is strong, with Queen's projecting average annual FTE enrolment growth of 1.4% between F2025 and F2027. We draw comfort from the University's significant financial flexibility to respond to near-term pressures without jeopardizing its long-term outlook. The University's credit profile continues to benefit from (1) strong ongoing demand, (2) prudent financial management, (3) a robust balance of expendable resources, and (4) a responsive budget model that allows faculties and shared service units to respond to changing financial circumstances.

As at April 30, 2024, the University's total debt was $377.1 million, or $12,063 per FTE. In the absence of material new borrowing, we estimate the debt-per-FTE ratio will decline to $11,100 by 2026-27.

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) https://dbrs.morningstar.com/research/437781

CRITICAL RISK FACTORS (CRFs) AND FINANCIAL RISK ASSESSMENT (FRA)

(A) Weighting of CRFs
In the analysis of Queen's, the CRFs are considered in the order of importance contemplated in the methodology.

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

(C) Weighting of the CRFs and the FRA
In the analysis of Queen's, the CRFs carry 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 (February 3, 2025; https://dbrs.morningstar.com/research/447186) 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 Environmental, Social, and Governance 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.

For more information on Morningstar DBRS' policy regarding the solicitation status of credit ratings, please refer to the Credit Ratings Global Policy, which can be found in the Morningstar DBRS Understanding Ratings section of the website: https://dbrs.morningstar.com/understanding-ratings

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 https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.

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