CHICAGO – Chicago-based Roosevelt University lost an investment grade rating as it struggles with operating deficits driven by the strains of enrollment losses and a hefty debt load.
Fitch Ratings Tuesday dropped its rating on the university's $225 million of outstanding debt to BB-plus from BBB-minus, and assigned a stable outlook. Moody's late last year revised its outlook on its Baa3 rating, the lowest investment grade level, to negative.
The downgrade "reflects the university's fifth consecutive year of negative operating margins, and another deficit projected for fiscal 2016," Fitch wrote.
The university's enrollment has been uneven, limiting tuition growth, and it's highly reliant on student-generated revenues to cover 88% of operations. Enrollment declined last fall by 11% to 4,285 students and that's expected to drive another operating deficit although the university is hoping to improve on that figure next fall.
"Management attributes this not to lack of demand, but to admissions systems failures," Fitch wrote. "Management assures Fitch that admissions issues have been corrected."
The school's balance sheet is strained by a high debt burden with maximum annual debt consuming a high 15.7% of fiscal 2015 revenues. Debt service coverage is thin at 1.1 to 1.2 times and "an escalating debt structure adds risk" as the maximum annual amount due rises to $19 million in fiscal 2021 from a current level of $16 million.
The not-for-profit school sold its debt in 2007 and 2009 through the Illinois Finance Authority with much of it going to finance its new "vertical" campus building in downtown Chicago.
"Fitch views the university as having no new debt capacity," analysts said.
The school is working to stabilize its operations and has a new president, Ali Malekzedah, with a track record of fundraising. He's initiated marketing, budget, and admissions reforms, and other key leadership positions are also in the process of being filled.
"Roosevelt's new leadership is focused on increasing both enrollment and net student revenues. Fitch views success with these efforts as necessary to maintain the current rating," analysts wrote.
The school was founded in 1945 and operates out of the historic auditorium building in downtown Chicago and the 32 story "vertical campus." It also operates a campus in suburban Chicago.
