Illinois State University last week lost the positive outlook from Moody’s Investors Service on its A2 rating due primarily to the state’s budget struggles.
The action — affirming the credit and revising the outlook to stable from positive — affects $134 million of outstanding debt issued through the Board of Trustees of Illinois State University.
The state was downgraded by Moody’s this year to A1 from Aa3, due to lack of action on its roughly $12 billion deficit and strains on its liquidity. The university gets about 36% of its adjusted revenues from state payments. Though it lost its positive outlook, analysts said, the university’s credit at the current rating remains sound as long as the state’s fiscal situation does not worsen.
“Despite the liquidity pressures at the state level, which have caused delays in payment of state funds, Moody’s believes the university has managed its operations and cash flow well thus far and does not believe there is likely to be further pressure on the rating at this time,” analysts wrote.
“Should the trends worsen at the state level with respect to the magnitude of reduction or delay in payments to the university, or should the state’s rating be downgraded further, we would revisit ISU’s credit rating and outlook,” the analysts added.
The university reported a minimum operating cash balance of about $114 million in the past year, which eases concerns over lengthy delays seen in state payments due to its liquidity crunch from declining revenues.
The credit benefits from the school’s solid position as a public higher education provider in Illinois, with a growing full-time student enrollment of 18,003 last fall, strong financial management, and robust growth of its unrestricted financial resources, to $100 million last year from $38 million five years before. Its challenges include a reliance on state funding and a projected decline in Midwestern graduates in the coming decade.
