Credit rating agency says Quebec’s policy changes will deter out-of-province and international students, putting a strain on the universities’ budgets.
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Moody’s credit rating agency has downgraded Concordia University and warned McGill University’s financial outlook has weakened — further fallout after Quebec targeted the two English institutions with a tuition hike and other policy changes.
The creditworthiness update raises the spectre of higher borrowing costs for the institutions, which have complained the Quebec government’s actions put their finances in jeopardy.
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Moody’s said an expected drop in enrolment will strain the two universities’ budgets. The agency issued updates on the institutions in March. They have not been previously reported.
More downgrades could follow if student demand is even weaker than expected or if Quebec imposes “additional policy changes” detrimental to McGill and Concordia, Moody’s said.
The agency put the universities’ ratings under review late last year.
At the time, McGill warned a lower credit rating would cut its “capacity to reimburse,” increase borrowing costs and make it “very difficult” to finance big infrastructure projects.
On Friday, Concordia spokesperson Vannina Maestracci said the university is “disappointed (but) we were unfortunately expecting this in light of Moody’s report late last year.”
“We have said since the fall that the government’s new measures would have negative impacts for English universities and this is one of those impacts.”
McGill did not respond to a request for comment.
Higher Education Minister Pascale Déry last year announced Quebec will, as of fall 2024, hike tuition by 33 per cent, to $12,000 per year, for undergraduate and non-thesis graduate students from other provinces studying in English.
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In addition, changes to international student funding rules will result in a loss of $5,000 per foreign student, Moody’s said. Quebec is also imposing French proficiency requirements for students from outside Quebec as of fall 2025.
McGill and Concordia welcome most of Quebec’s international and out-of-province students.
The changes are part of Premier François Legault’s effort to increase funding for French universities and reduce the number of non-French speakers in Montreal post-secondary institutions. His government has complained too much English is being spoken on Montreal streets, with non-French-speaking students partly to blame.
Concordia
Moody’s downgraded Concordia’s baseline credit assessment to A3 from A2 and its senior unsecured long-term debt ratings to A1 from Aa3.
Quebec’s policy changes “will materially negatively affect Concordia’s student demand and revenue. … As a result, the university faces several years of weaker financial metrics.”
Moody’s expects Concordia to record a 30-per-cent reduction in new enrolment from Canadian students outside Quebec this year, compared with last year. A 10-per-cent decline among international students is also forecast.
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Since 90 per cent of Concordia’s operating revenues are tied to enrolment, “revenues will decline at a faster pace than the university can adjust spending.”
Concordia last year said it would cut its budget by 7.8 per cent. But Moody’s notes it will “face challenges identifying areas of substantial cost savings” since the university is “already relatively efficient.”
On the plus side, “the reputation of Concordia, particularly its ability to attract non-traditional students such as mature students attracted to professional training rather than traditional curriculum, and the strong reputation of the John Molson School of Business will continue to drive student interest.”
McGill
Moody’s downgraded McGill’s baseline credit assessment to A1 from Aa3, but maintained its Aa2 senior unsecured long-term debt ratings.
“McGill’s ability to control its revenue generation and benefit from its strong international reputation is weakened” because of the policy changes, the agency said. The university “faces weaker profitability and, in general, financial metrics than expected.”
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Moody’s expects McGill’s Canadian enrolment from non-Quebec students to drop by 20 per cent, and international admissions to fall by seven per cent.
The agency said the university kept its Aa2 rating because of mitigating factors, including “revenue diversification, an exceptional brand and strong governance.”
It said “McGill continues to be one of Canada’s pre-eminent centres for academic instruction and a leader for high-quality research,” helping ensure first-rate applications.
“Additionally, McGill’s total wealth will continue to be among the highest of Canadian universities.”
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