CHICAGO (S&P Global Ratings) Aug. 4, 2016--S&P Global Ratings lowered its long-term rating to 'A' from 'A+' on Illinois State University Board of Trustees' auxiliary facilities system (AFS) revenue bonds. In addition, we lowered our long-term rating and underlying rating (SPUR) on existing bonds and certificates of participation (COPs), issued on behalf of Illinois State University (ISU), to 'A' from 'A+'. The outlook, where applicable, is negative.
"The downgrade reflects our view of ongoing operational and liquidity uncertainty attributable to budgetary stresses at the state level," said S&P Global Ratings credit analyst Ashley Ramchandani. "While the state has provided stop-gap funding and ISU does not have immediate liquidity pressures, state budgetary pressures have, and will, in our view, continue to negatively affect the university such that we believe its credit profile is now more consistent with the 'A' rating."
The negative outlook reflects the aforementioned challenges that we believe the university will continue to face over the next two years, and their potential impact on the university, particularly if the state continues to delay, reduce, or not provide operating appropriations and of Monetary Assistance Program (MAP) funding. The funding situation remains unresolved for fiscal 2017.
The state of Illinois passed a stop-gap budget on the final day of the fiscal year 2016 (June 30), providing higher education institutions with $1 billion of funds to support operations during the first six months of fiscal 2017. Under this budget, which was approved by both houses and signed by the governor, ISU is scheduled to receive approximately $38 million of state operating appropriations and $6 million of MAP funds for spring semester of fiscal 2016. While receipt of these state operating appropriations mitigated liquidity risks, we do not view these stop-gap measures as a long-term solution to ISU's state funding support given the state has yet to make substantial progress toward a budget for fiscal 2017. Please see the full analysis (published Feb. 22, 2016) for more information.
The 'A' rating reflects our view of ISU's enterprise profile, which we assessed as strong, characterized by stabilizing enrollment, a respectable demand profile with improved matriculation and moderate selectivity for the rating. We also assessed ISU's financial profile as strong, with robust balance sheet metrics and consistently negative operating performance on a full-accrual basis (though somewhat positive on a cash basis) because of historical softening in enrollment and operating in a challenging state funding environment. Combined, we believe these credit factors lead to an indicative stand-alone credit profile of 'a' and long-term rating of 'A'.
