MOODY'S ASSIGNS Aa3 RATING TO SIMON FRASER UNIVERSITY'S $150 MILLION DEBT OFFERING; OUTLOOK STABLE
THIS IS UNIVERSITY'S INITIAL DEBT RATING
New York, May 27, 2003 -- Moody's Investors Service has assigned an Aa3 rating with a stable outlook
to Simon Fraser University's (SFU) $150 million Senior Unsecured
Debentures, Series 2003. The debentures are an unsecured
general obligation of the University and will be used to finance a variety
of projects including student housing and recreation facilities,
parking, and research buildings. The debentures are structured
with a forty year bullet maturity.
The Aa3 rating and stable outlook reflects SFU's:
--Very strong student market position and growing enrollment
derived from its academic reputation and favorable location in British
Columbia's high growth region;
--Good levels of financial reserves expected to continue
to be bolstered by fundraising, property development, and
accumulated operating surpluses; and
--Consistently favorable operating performance with significant
financial flexibility derived from the recent deregulation of tuition.
STRONG STUDENT MARKET POSITION AND GROWING ENROLLMENT
We believe SFU enjoys a very strong student demand position that is expected
to contribute to ongoing enrolment growth and fiscal stability.
Total full-time equivalent enrollment now stands at over 18,000
students, reflecting a 16% increase over the past five years.
With limited higher education capacity in the Province and an increasing
number of students seeking a higher education degree, SFU is likely
to continue this growth pattern.
British Columbia has the second highest projected growth in the nation
(after Ontario) in the 18-24 year old population combined with
the lowest number of university spaces on a per capita basis. As
a result, SFU is likely to remain highly selective, accepting
just half of applications, with a strong yield rate of nearly 50%.
This deep applicant pool ensures that SFU will be able to maintain targeted
enrollment. The limited number of university spaces leads many
students to begin their university careers at two-year colleges,
so that SFU draws a mix of first-time students and transfers.
As one of the nation's leading comprehensive universities, SFU offers
a broad array of academic and research programs that should continue to
supports its reputation and ability to attract high quality students.
The University has five faculties (Arts, Science, Applied
Science, Business Administration, and Education) and is also
well known for its extensive co-op education programs. Its
three campuses are favorably located in Vancouver's high growth region.
SFU's latest campus, SFU Surrey, previously, functioned
as the Technical University for British Columbia (Tech BC) and is expected
to provide innovative programs in information technology, interactive
arts, and business. While SFU Surrey's enrollment is currently
small at 580 students, it is well-positioned to grow substantially
assuming appropriate provincial funding for students and facilities due
to its location in the high growth population area of Greater Vancouver.
Among the comprehensive universities, SFU has one of the stronger
research programs, garnering $35 million in research awards
from a mix of funding sources, including federal, provincial,
and private. Research is also favorably diversified across departments.
With recent significant federal and provincial investment in research,
the University's research program has increased by approximately 75%
over the past five years, with further growth anticipated as the
University invests in expanded research facilities.
FINANCIAL RESERVES PROVIDE HEALTHY OPERATING AND DEBT CUSHION AND ARE
EXPECTED TO CONTINUE GROWING
We believe SFU's financial reserves provide it with good financial flexibility.
Total financial resources at the end of FY2002 were in excess of $180
million, fully covering outstanding debt. Endowment performance
has been favorable with a modest 0.7% loss in FY2001 followed
by a 7.6% gain in FY2002. Just over 60% of
the University's resources are unrestricted, which would enable
the University to fully redeem nearly two-thirds of its pro-forma
debt or cover nearly five months of operating expenses. Beyond
the current issue, the University has no additional medium-term
borrowing plans. As a result, the University's leverage profile
should continue to improve given anticipated ongoing resource growth.
As a newer university, SFU has a less-established fundraising
record, and therefore lower resource levels than the other major
in-province university, the University of British Columbia
(Aa2, $800 million of total resources). Nonetheless,
we expect reserves to continue increasing from a mix of sources.
Fundraising has been growing steadily in recent years, now reaching
over $15 million in gifts annually. The University is in
the midst of a 6 year, $100 million fundraising initiative
timed to coincide with its 40th anniversary (2005). As SFU's relatively
young alumni population matures, we expect fundraising to continue
growing, particularly given further investment in development infrastructure.
Additionally, the University is beginning to develop surplus land
at its Burnaby Mountain Campus for mixed use residential/retail,
and office space in a development called "UniverCity". Management
projects that over the 20 years of planned UniverCity development,
in excess of $100 million will be added to the University's endowment
funds. The first phase of development is scheduled to be completed
in 2008, netting SFU $28 million of revenues after development
Finally, the University's relatively strong unrestricted liquidity
position is derived from a consistent track record of generating and retaining
operating surpluses, a trend we expect will continue for the foreseeable
UNIVERSITY HAS AN ESTABLISHED TRACK RECORD OF PRUDENT FINANCIAL MANAGEMENT
SFU's history of accumulated operating surpluses highlights its track
record of prudent financial management and stability. With stable
provincial funding, growing enrolment and research, and tuition
deregulation, we expect SFU to be able to continue generating positive
operating performance contributing to net asset growth.
The University at this point remains relatively reliant on provincial
funding, which provides nearly 50% of SFU's operating revenues.
This highlights some potential vulnerability to any changes in government
funding practice and policy. However, we expect that the
University's reliance on the government will decline over the next several
years as a result of tuition deregulation and limited growth in new provincial
dollars. Moreover, the University's healthy unrestricted
reserves provide a significant degree of financial flexibility.
Following a six year period of frozen tuition, the province shifted
to a fully deregulated tuition policy last year under a new government.
As a result of the freeze, tuition levels in British Columbia are
very low compared to the Canadian national average. SFU is raising
its tuition substantially, implementing a 30% increase in
fall of 2002 and approving a further 30% increase for fall 2003.
The University expects tuition to reach the national average by 2005.
Given the strong level of demand, we believe SFU would have the
ability to raise tuition even more if necessary to maintain fiscal balance
and academic quality, without impacting enrolment.
The stable rating outlook over a two-three year time horizon is
based on our expectation that the University will be able to maintain
growing enrollment and research funding, with ongoing fiscal stability,
moderately growing reserves, and limited additional borrowing.
Over the longer term, if the University is successful in increasing
fundraising, accomplishing its property development objectives,
and growing resources, with continued strong demand and favorable
operating performance, credit quality could improve.
KEY FACTS (fiscal 2002 financials, fall 2002 enrollment)
Total FTE enrollment: 18,365
Total Pro-Forma Debt: $173 million
Total Financial Resources: $181 million
Expendable Resources to Debt: 0.82 x
Expendable Resources to Operations: 0.5 years
Three-Year Average Operating Margin: 3.3%
Estimated Average Peak Debt Service Coverage: 2.2 times (excludes
Reliance on the Province: 48%
SFU: Jim Boyd, Treasurer, 604-291-4013
Financial Advisor: Murray Neal, Scotia Capital, 416-863-7438
Senior Vice President
Public Finance Group
Moody's Investors Service
Andrew J. Kriegler
Structured Finance Group
Moody's Investors Service