The University’s credit rating has dropped due to provincial revenue constraints
Ryerson University is less likely to be able to pay off its debt, according to financial firm Moody’s Investor Services, which downgraded the university’s $240 million credit rating.
Moody’s agency grades the creditworthiness of corporations, banks and national economies based on their ability to repay debt.
It dropped Ryerson’s ranking to an ‘Aa3’ from ‘Aa2,’ which is the fourth-highest score on Moody’s 21-point rating system.
The university’s current ranking reflects an upper-medium grade with low credit risk, according to Moody’s. The ‘A’ denotes a strong capacity to meet financial commitments and low susceptibility to adverse economic conditions and circumstances. The modifier ‘3’ indicates a ranking in the lower end of that generic category.
According to Moody’s report obtained by the Ryersonian, “The combination of increasing debt along with slowing revenue growth will result in a faster than previously anticipated increase of the province’s debt burden.”
If the province can’t generate revenue, it may accumulate more debt. Ryerson will be affected because it counts on the province for funding.
“The good news is that we’re an Aa3 stable outlook, meaning if the province gets downgraded again for other reasons, we will not be affected by any further changes in the province,” Ryerson’s chief financial officer Joanne McKee said. She added that all Ontario universities depend on the provincial government, with some universities ranked above or below the province. Hence, in Ryerson’s case, its Aa3 is because the province was an Aa2.
In December 2018, Moody’s downgraded Ontario’s rating from ‘Aa2’ citing its $14.5 billion deficit and revenue cuts under premier Doug Ford, which is projected to add budgetary pressures in the next three to five years.
“The challenge also arises from a provincially mandated 10 per cent reduction in domestic student tuition fees for 2019-20, which the university estimates a $240 million revenue decline,” according to the report.
“I might suspect that all things being equal, if the province was brought back up, that we might get that lift again. At this point, Ryerson is the same as the province and will no longer be affected by the province being downgraded any further — if they are,” McKee added.
In 2017, Ryerson issued a $130 million bond to fund capital projects and two credit facilities (a type of business loan), which included the construction of the Daphne Cockwell Health Sciences building. This was responsible for more than half of the $240 million debt, according to Moody’s report.
According to Moody’s, Ryerson can mitigate these challenges based on its overall enrolment demand, strong international demand, and its capacity to increase international student tuition fees.
In order to make up the loss of revenue from the province, the university will charge international students more in tuition, ranging from 6.3 per cent to 26.5 per cent.
The university also projects that international students will make up 13 per cent of enrolment within the next five years, double the current amount.
Ryerson’s location and high demand for its programs are key strengths that may also be helpful, McKeen added. “Because Ryerson is in a strong enrolment area, like downtown Toronto, not only does Ryerson have a strong demand, [but] we are also in a strong market,” she said.
Ryerson’s enrolment increased by 14 per cent from 2014-15 to 2018-19.
Currently, Ryerson has one of the highest applicant registrant ratios in a Canadian university system (nearly 9:1). According to the report, this means the university can meet enrolment targets while maintaining selectivity.