A handful of Illinois public universities got their first dose of good rating news in a long time this week as they work to recover from the two-year state budget impasse that took at a heavy toll on their ratings, balance sheet, reputations, and enrollment.
Moody’s Investors Service shifted its outlook to stable from negative on six of the seven public universities it rates on Monday. One university saw both its ratings upgraded and another won an upgrade of its certificates of participation.
The actions impacted $676 million of debt, both auxiliary system bonds and certificates of participation issued by Illinois State University, Southern Illinois University, Northern Illinois University, Northeastern Illinois University, Governors State University, and Eastern Illinois University.
The outlook revision to stable from negative reflects “strengthened liquidity and operating performance following the receipt of state funding for fiscal 2017 and fiscal 2018,” according to Moody's. “The stable outlook reflects expectations of generally stable state operating appropriations for fiscal 2020 with timing of payments consistent with fiscal 2019.”
Illinois State is the only one of the six that carries an investment grade rating of Baa2 on its $109 million of auxiliary system backed debt and a Baa3 on its $46 million certificates of participation.
Southern’s $177 million of bonds are rated Ba2 and its $24 million of COPS were upgraded one notch to Ba3 from B1. The upgrade on the COPs reflects improvement in legally available funds and liquidity, reducing the likelihood of termination of the purchase contract, Moody’s wrote.
Northern’s $180 million of bonds are rated Ba2 and its $9 million COPs Ba3. Northeastern’s $31 million of COPs are rated B3. Governors State’s $5 million of bonds are rated Ba3 and its $9 million of COPs B1.
Northeastern’s $31 million of COPS are rated B3.
Governors $5 million of auxiliary bonds are rated Ba3 and its $9 million of COPs are rated B1.
Eastern’s $8 million of bonds were upgraded one notch to B1 from B2 and its $78 million of COPs were upgraded two notches to B3 from Caa2 due to its improved liquidity with more stable state funding in hand that has lessened “the university’s severe liquidity stress.”
“Further, there are some indications of enrollment stabilization. Combined with steadier state funding over the next year and ongoing expense management, EIU's operating performance has positive prospects for improvement,” Moody’s wrote.
The state’s flagship University of Illinois already enjoyed a stable outlook and no action was taken Monday. The University of Illinois' main borrowing credit is rated at A1, low for a state public flagship university. The school has $1.54 billion of debt.
Moody’s affirmed the rating in April based on its strong credit profile that “reflects its excellent liquidity and significant market strength driving continued enrollment growth and substantive research activity.” A key credit challenge is the university’s material operating reliance on the state.
Moody’s does not two other state universities, Chicago State University and Western Illinois University.
Moody’s had hit with the universities with several rounds of cuts dropping many to junk over the course of the state’s two-and-half year budget impasse that ended in July 2017.
COPS are payable from state-appropriated funds and budgeted legally available funds but they are especially at risk as they represent an unsecured obligation that a university board can terminate if revenues are not available.
The auxiliary revenue bonds are typically secured by a pledge of net revenues of the auxiliary system as well as pledged fees and tuition and sometimes parking, dining, residential, athletic, and research facilities.
