CHICAGO – The College of DuPage in suburban Chicago lost its remaining triple-A rating amid governance turmoil and instability.
Moody's Investors Service dropped its rating on the two-year college – formally known as Community College District 502 -- one level to Aa1 and assigned a stable outlook late Friday.
The action impacts $284 million of debt and follows Standard & Poor's two-notch downgrade to AA Feb. 12.
Operational risks stemming from the college's accreditation being placed on probation by the Higher Learning Commission prompted the new downgrade.
"While management has developed a robust response to address the HLC concerns, we believe that the issues raised reflect a level of governance instability that is not consistent with a Aaa rating," Moody's wrote.
"The stable outlook reflects our expectation that the district's financial flexibility and unusually large reserve position, provides it with a cushion to weather any temporary shocks to operations, enrollment or revenues that may emerge stemming from its probationary accreditation status," Moody's wrote.
The college has been stung by county and federal probes of administrative spending, contracts related to a fundraising arm, credits tied to its law enforcement academy, and other financial and oversight matters.
At the same time, a public feud has played out between some board of trustee members and the former administration that led to the ouster of the school's president and finance team.
The officials who were forced out filed wrongful termination lawsuits.
Kathy Hamilton, the board member who led reform efforts and helped get a majority of allies elected to the board in April, has since resigned, leading to further upheaval and conflict.
The college's ratings had until recent weeks weathered the governance mess due to its stellar financial profile. Its bonds are secured by its full faith and credit unlimited ad valorem tax pledge.
But the ratings agencies acted after the Higher Learning Commission's put the college on probation in December because of concerns related to integrity and governance of the college.
The probation period lasts for two years and the college is required to file a report in February 2017 followed by another comprehensive evaluation in April 2017.
The accreditation report cited the college's acknowledgment of investment policy violations, alleged illegal and unethical conduct by employees that was not acted on by administrators, and no-bid contracts given to vendors with college board ties.
The college reports that it has taken actions to address the probation status that have brought it into compliance with its own investment and oversight policies, but the accreditation threat remains.
“While we understand Moody’s chose to downgrade the College’s bond rating in view of the Higher Learning Commission report, assigning Aa1 with a stable outlook is still a very good rating and reflects the College's current financial and academic strengths,” an official statement from the college said.
“The College’s Board and administration will be working diligently over the next year to protect our accreditation to put us on track to ultimately return to a Aaa rating,” the statement said.
The school has no near-term borrowing plans.
The school benefits from low exposure to the state's ongoing budget impasse because it relies on state aid for just 7% of operations.
The college, which has an enrollment of 16,310, does face the risk of increased pension costs should the state shift costs it now covers to higher education institutions.
