CHICAGO -- Moody's Investors Service revised the Illinois Institute of Technology's outlook to stable, easing pressure on the rating that is at the lowest investment grade level.
The rating agency revised the outlook Monday to stable from negative and affirmed the Baa3 rating on $216 million of debt that included privatized student housing bonds. The school's debt was sold in 2006 and 2009 through the Illinois Finance Authority.
The school's 2002 IIT State Street bonds are not affected by the rating action. They are rated A2 based on a direct pay letter of credit.
Moody's said the outlook revision "acknowledges steady improvement in IIT's credit profile, including growth in net tuition revenue while facing an adverse student market environment."
The outlook reflects an expectation of continued reduction in operating reliance on supplemental endowment draws and improvement in cash flow to adequately cover debt service. The Chicago-based school has a niche in science and technology related programs that support the expectation of enrollment and net tuition revenue growth reflected in the rating and outlook.
While operations and liquidity are expected to remain relatively weak in the near-term, "IIT's financial policies and improved performance demonstrate a cultural change to fiscal prudence and transparency, which are expected to more solidly support the rating at Baa3," Moody's added.
The credit is challenged by a continued reliance on an external credit facility to support cash flow needs while its financial leverage remains high and competition for research funding is intense.
IIT also has a complex debt structure, including unhedged variable rate demand debt with financial covenants that if breached could cause the bank to accelerate the debt, and result in modest principal amortization.
