BRADENTON, Fla. — Uncertainty about Louisiana's higher education funding led Standard & Poor's to place five institutions on negative CreditWatch.

The April 28 action effects unlimited student fee, auxiliary, and lease revenue bonds issued for Nicholls State University, the University of Louisiana Lafayette, the University of New Orleans Research Foundation, Louisiana State University's Bogalusa Community Medical Center Project, and the Delgado Community College Foundation.

The CreditWatch status reflects the potential for negative rating actions due to the proposed reductions for higher education in Louisiana's fiscal 2016 state budget, according to S&P analyst Bianca Gaytan-Burrell.

"Although it is unusual for us to take a rating action on a budget that has not been approved, we believe that given the history of state appropriation reductions coupled with the proposed reductions in higher education funding even the best case scenario could pressure public universities in Louisiana and result in significant related financial uncertainty," Gaytan-Burrell said.

Rating action would vary by institution as each has an already weakened financial profile, said S&P. Any further reduction in funding could impair cash flow and operating performance.

The state budget is expected to be passed in the next 47 days.

"During this time, we will continue to monitor the universities' respective response to the budget, and we expect to resolve the CreditWatch negative status in the next 90 days," Gaytan-Burrell said. "To date, these five Louisiana public universities report that they expect to pay debt service on time and in full."

The governor's budget was released in February 2015, and proposed a mix of spending cuts, the elimination of certain tax credit refunds, and the use of one-time funding to close a $1.6 billion statewide budget gap.

The executive budget also proposed relieving near-term budget pressures by raising cigarette taxes and university tuition and fees as recurring revenue for higher education, though these would be offset in the budget by new tax credit payouts to students in the future.

"We believe the proposed tuition and fee increases could generate upfront revenue for the universities," S&P said.

If the Legislature votes to eliminate $372 million of identified refundable tax credits, higher education funding would decline by 8% in fiscal 2016. If the tax credits are not passed, or other resources found to replace them, the higher education budget could fall by 22% in fiscal 2016, resulting in significant operational pressures for universities.

Although state appropriations are not pledged to any of the university bonds placed on negative CreditWatch, state funding represents, on average, slightly less than a quarter of the respective university's revenues and contribute to the university's cash flow and operating performance.

From fiscal 2009 to fiscal 2015, the state has reduced its appropriations to each institution by more than half, S&P said.

"The historical severity of these reductions, coupled with the inability to raise tuition, adds to the credit risk in our view," Gaytan-Burrell said.

On April 24, Louisiana State University cancelled a $114.5 million bond offering that had already priced two days earlier after investors withdrew from the deal amid concern about the institution's financial status. LSU said that it was exploring "a wide range of contingency plans" because of the state's $1.6 billion deficit.

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