Art Institute's rating landscape improves

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CHICAGO — The Art Institute of Chicago won a ratings boost into the double-A category in recognition of its steady decline in debt and stronger reserves.

Moody’s Investors Service raised the museum’s rating to Aa3 from A1 and assigned a stable outlook to the institution’s $165 million of unsecured general obligation bonds issued through the Illinois Finance Authority and former Illinois Educational Facilities Authority.

The aggressive pay down of debt and improved reserves “is in line with its priorities and was funded by very good fundraising and strong cash flow generation,” Moody’s said of the internationally known art museum and school.

The museum has paid down $98.5 million of debt over the last five years, a move allowed by strong cash flow that has also provided funding for capital expenses and art acquisitions.

Fiscal 2019 results are expected to benefit from steady growth in tuition revenues and stable museum revenues. Investment income and gifts also are a primary revenue stream, accounting for more than 30%, with net tuition revenues of the school making up 44%. The museum’s diverse revenue streams provide a key credit strength. The Institute has $274 million in operating revenue .

Total cash and investments of $1.1 billion further enhance the balance sheet. The museum has benefited from “excellent” fundraising, averaging $69 million in gift revenues for the last three fiscal years, Moody’s said.

Challenges include a debt structure that relies heavily on bullet maturities, as well as competitive pressures on both museum visitors and art school enrollment and related revenue streams. More than $30 million matures in fiscal 2019 and AIC intends to make scheduled principal repayments and refinance a maturing bank note.

“The stable outlook reflects expectations of continued strong cash flow and maintenance of its improved leverage profile,” Moody’s said. “We expect favorable operating performance to be supported by steady student demand, donor support and museum visitorship.”

Moody’s expects any significant capital spending would be offset by philanthropic support for the related projects.

The Art Institute’s international reputation is considered a credit strength. The institute drew 1.6 million visitors in fiscal 2018, up from 1.4 million five years ago. The Institute is a well-known art and design school with over 3,600 undergraduate and graduate students, up 6.8% from five years ago.

The museum in downtown Chicago is one of 11 museums located on Chicago Park District land and does face some risk in attendance, which may fluctuate depending on the popularity of exhibitions and Chicago tourism.

The district sends $5.4 million, or about 2% of revenues, to the museum which demonstrates an important linkage between the museum and the city of Chicago as a key member of the city's cultural landscape, Moody’s said.

“The institute benefits significantly from tourism, with approximately 50% of visitors originating from outside Chicago, offers many cultural and other offerings to attract the leisure dollar, but AIC should remain a popular destination given its extensive exhibitions, galleries and popular location,” Moody’s said.

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