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05 Feb 2020
Toronto, February 05, 2020 -- Moody's Investors Service ("Moody's") today affirmed the existing
Aa2 debt ratings of the University of Ottawa, Canada ("University
of Ottawa"), assigned Aa2 debt rating to an anticipated CAD250 million
debenture of the university and affirmed the aa2 Baseline Credit Assessment
(BCA). The stable outlook on the ratings was maintained.
The affirmation of the Aa2 debt ratings reflects the University of Ottawa's
excellent strategic position, strong balance sheet which offers
sufficient liquidity, balanced against Moody's expectations
of lower revenue growth and weaker fiscal outcomes as the university adjusts
to a provincial funding environment which is under transition.
The University of Ottawa's strategic position is supported by its
strong research reputation and niche market as a premier bilingual institution.
The university follows a number of internal policies and controls,
with a forward-looking approach to ensure that potential pressures
are identified early to allow adoption of mitigating measures before pressures
are fully realized. A budget model that uses conservative approaches,
as well as a mix of controls and responsibilities between individual departments
and the central unit, has helped the university record stronger
than budgeted outcomes in recent years.
The university also maintains relatively strong levels of cash and investments
despite ongoing pressure from a restrictive provincial operating environment.
This strength protects bondholders from operational pressures that the
university may face. Post-bond issuance, spendable
cash and investments is expected to remain above 1x total debt and the
university holds sufficient liquidity to cover 3 months of operations.
Debt service coverage is also expected to remain robust post issuance,
As with other universities in Ontario, Moody's expects that
the University of Ottawa faces a challenging operating environment due
to a provincial funding framework in transition which will challenge the
university's ability to generate revenue growth. The province
mandated a 10% reduction to domestic undergraduate tuition rates
in 2019/20, followed by a tuition rate freeze in 2020/21.
At present, the tuition framework beyond 2020/21 is unknown,
which limits the university's planning. Additionally,
the province will increase the share of provincial funding subject to
performance criteria which may add greater volatility to the university's
revenue than currently. Ontario has indicated that performance
based funding will account for 25% of the provincial operating
grants in 2020/21, rising annually until reaching 60% in
Moody's expects that the university will be able to manage the transition
of the operating environment. While the university will be challenged
to increase tuition revenue given it is at its steady state enrolment
level, some potential for a larger share of international students,
which pay higher tuition fees than domestic students, as well as
new programs for mature students may exist to support revenue growth.
Furthermore, Moody's expects that the university's improved
budget process, which resulted in stronger than expected outcomes
in 2018/19, will facilitate the university's transition through
this funding change. Greater clarity of these challenges will be
known once the university's strategic management agreement (SMA3)
is released by the province in the upcoming months.
The Aa2 debt ratings of the University of Ottawa reflect a baseline credit
assessment of aa2, which takes into consideration the above mentioned
credit factors. Moody's also assumes a high level of support
from the Province of Ontario (Aa3 stable) should the university face acute
RATIONALE FOR THE STABLE OUTLOOK
The stable outlook reflects Moody's view that management of the
university will be able to successfully navigate the university through
the initial years of a transitioning provincial funding framework with
limited, sustained impact on its operating results.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE CONSIDERATIONS
In Moody's assessment, environmental considerations are not
material to the University of Ottawa's credit profile. Social
risks are moderate given the declining demographic profile of the domestic
university aged population. The university also faces risk if it
fails to adapt to potential changing student demand for program offerings
and course delivery. Governance considerations are material but
seen as low credit risk given the high quality of the university's
management which is illustrated by the positive outcomes, prudent
budgetary practices as well as sound liquidity and debt management.
WHAT COULD CHANGE THE RATING UP/DOWN
The rating could face upward pressure if the university were to record
very strong cash flow, improve debt affordability (total debt to
cash flow) to below 4x and materially increase liquidity to provide for
greater security given the university's revenue stream will be subject
to potential greater volatility over the next four years. Downward
pressure could arise if the university exhibits sustained difficulty transitioning
to the new funding environment, including maintaining total debt
to cash flow above 6x, annual change in operating revenue growth
below 3% and/or operating cash flow margin below 12% beyond
The methodologies used in these ratings were Higher Education published
in May 2019 and Government-Related Issuers published in June 2018.
Please see the Rating Methodologies page on www.moodys.com
for a copy of these methodoloies.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security or pursuant
to a program for which the ratings are derived exclusively from existing
ratings in accordance with Moody's rating practices. For ratings
issued on a support provider, this announcement provides certain
regulatory disclosures in relation to the credit rating action on the
support provider and in relation to each particular credit rating action
for securities that derive their credit ratings from the support provider's
credit rating. For provisional ratings, this announcement
provides certain regulatory disclosures in relation to the provisional
rating assigned, and in relation to a definitive rating that may
be assigned subsequent to the final issuance of the debt, in each
case where the transaction structure and terms have not changed prior
to the assignment of the definitive rating in a manner that would have
affected the rating. For further information please see the ratings
tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated
agent(s) and issued with no amendment resulting from that disclosure.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
VP - Senior Credit Officer/Manager
Moody's Canada Inc.
70 York Street
Toronto, ON M5J 1S9
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
MD - Sub Sovereigns
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Moody's Canada Inc.
70 York Street
Toronto, ON M5J 1S9
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
No Related Data.
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