It may not be an A+, but Ryerson received high marks for its financial management from an external expert.
Moody’s Investor Services, a major credit-rating agency that assesses the credit risk of companies, banks and national economies, gave Ryerson its third-highest investment grade, “Aa2,” in September 2017.
Adam Hardi, the lead Moody’s analyst, likens the credit rating to the way a bank makes a judgment about whether it will give a mortgage to a home buyer.
“(The bank) would also assess what your riskiness is; how likely are you are to service your mortgage… and what is the risk that you’re going repay both the principal and interest over time.”
Credit ratings associated with universities are an increasingly common phenomenon in Canada, first initiated by the University of Toronto. It was the first post-secondary institution to receive a credit rating and issue a bond, in 2001. Since then, 12 other schools in Canada, like the University of Ottawa, Windsor, Western and UOIT, have followed suit.
The range of scores for these post-secondary institutions is between A3 and Aa1. They are generally evaluated to be high-quality and low-risk investments to potential bondholders.
For Ryerson, the rating was associated with the $130-million bond it issued to fund the construction of the Daphne Cockwell Health Sciences Complex. (see page 7 story)
Laurence Booth, a professor of finance from the Rotman School of Management at the University of Toronto, said since the provincial government cut funding for capital projects at Ontario universities, an increasing number of schools are turning to the debt market to finance campus growth.
“In the case of universities generally you’re looking at some sort of borrowing, not to finance ongoing operations,” Booth said. “They borrow money to finance physical operations that actually generate revenues.”
Moody’s “Aa2” score is the third highest score on the 21-point rating system, reflecting a high-quality, low-risk investment. Prior to public offering, any entity must be evaluated by credit rating service, such as Moody’s, to inform potential bondholders of the likelihood of repayment, said Hardi.
He said some of the most important factors in determining Ryerson’s credit rating are its stable growth in operating revenue, student enrolment and world-renowned research and incubator programs.
“(Ryerson) has really carved out a niche for itself in terms of their focus on research as well career advancement (and) entrepreneurship,” Hardi said. “It really helps position the university well both domestically and internationally.”
Joanne McKee, Ryerson’s chief financial officer, said that a high financial rating gives Ryerson the ability to compete for lower interest rates and attract potential buyers in the future, should Ryerson need to raise more funds.
Both Hardi and McKee maintain a positive outlook on Ryerson’s growth over the next three years, despite a dwindling student-aged population in Canada. The number of 15- to-24-year-olds decreased two per cent in the last four years, according to Statistics Canada.
The provincial government has also cut funding to enrolment growth and implemented tuition caps for domestic students. However, Hardi said Ryerson’s revenue growth is expected to remain at a stable six to seven per cent, supported by an increase in international students.
Currently, no limits have been set in place for international student fees. The population makes up 3.5 per cent of the Ryerson undergraduate student body as of 2016-17, and has seen a 16 per cent average growth year over year for the last five years.
By Julia Nowicki and Tyler Choi