CHICAGO – Southern Illinois University took a second rating hit over the strain of managing through the state's prolonged budget gridlock.

S&P Global Ratings dropped the public university's rating by two notches to BBB-plus late Wednesday. The action followed Moody's Investors Service move to downgrade Southern last week following a review that also resulted in five other public universities suffering downgrades.

"The downgrade and negative outlook reflect our view of ongoing severe challenges associated with the state of Illinois due to its weak financial position and resultant impact on SIU's financial position," said S&P analyst Shivani Singh.

The state's failure to appropriate university aid through much of fiscal 2016 placed "significant liquidity" on Southern and others. "Furthermore, given the length of the fiscal 2016 budget impasse and the absence of a substantial agreement among elected leaders, it is our opinion that state appropriation outcomes will remain uncertain in the intermediate term," Singh wrote.

Lawmakers approved and Gov. Bruce Rauner signed a six-month stopgap budget last week that provides about $1 billion for higher education. The amount, coupled with $600 million approved in the spring, falls far short of what the schools would expect to receive in fiscal 2016 and 2017.

Southern will receive $107 million in aid in the new appropriation and $8.5 million in low income student grant funding. The school received $57.4 million of aid in the spring legislation and $9.5 million in grant funding.

"While receipt of these state operating appropriations considerably reduce SIU's immediate liquidity risks, we do not view these stop-gap measures as a long-term solution to SIU's financial operating challenges given the state has yet to make substantial progress toward a budget for fiscal 2017," S&P wrote.

The S&P downgrade impacts housing and auxiliary facilities revenue bonds and certificates of participation as it views both security pledges as being equal to an unlimited student-fee pledge. Moody's dropped $231 million of housing and auxiliary debt one notch last week to Baa2 and $39 million of COPs two notches to Baa3.

S&P said the school benefits from its large enrollment base and generally stable demand characteristics despite recent fluctuations, an above-average endowment size, highly liquid investments, and low debt burden.

SIU operates campuses in Carbondale and Edwardsville with an enrollment of more than 31,000 and operating revenue of $1.15 billion. The state has nine public universities.

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