Moody' Investors Service downgraded Northern Illinois University's ratings to Baa2 from Baa1 on its Auxiliary Facility System (about $199 million outstanding) and Certificates of Participation (about $12 million outstanding). The outlook is negative.
According to a news release, the downgrade reflects expected weakening of operating cash flow and liquidity due to lack of FY 2016 state appropriations resulting from the failure of the State of Illinois (Baa1 negative) to enact a budget eight months into the fiscal year.
The release says a Baa2 rating favorably incorporates actions taken by its leadership team to reduce expenses and carefully manage liquidity to cope with the state budget impasse. It also reflects its market role as one of Illinois' largest regional public universities with diverse academic offerings. Moody’s says offsetting challenges are its narrow cash flow that will continue for the next few years due to enrollment declines in the face of a competitive student market, as well as high leverage and relatively modest balance sheet reserves.
Factors that Could Lead to an Upgrade
- Greater revenue diversification combined with stronger operating cash flow, demonstrating the ability to withstand reduced reliance on state support
- Substantial and sustained growth of liquid reserves
Factors that Could Lead to a Downgrade
- Significant decline in state appropriations, including on-behalf payments, or timing delays of disbursements that materially harms operating performance
- Further deterioration of the state's credit quality
- Failure to restore balance sheet reserves used to fund university in lieu of receipt of state funding