CHICAGO — Illinois’ state universities should have sufficient liquidity to meet their fiscal obligations, at least through November, under a newly approved power to borrow against late state payments and an infusion of tuition revenue expected in late August, Moody’s Investors Service reported in its latest credit outlook.
“We expect universities to make their remaining 2010 debt service payments without interruption, assuming short-term liquidity sources are established prior to August debt-service payment dates,” Moody’s wrote this week.
Gov. Pat Quinn last week signed the legislation that allows Illinois’ nine public universities to issue short-term debt in anticipation of state aid. The universities sought the new authority allowing them to borrow against the funding because the state is about $600 million behind in payments. Due to its liquidity crisis, Illinois is expected to owe as much as $6 billion to schools, human services providers, and other vendors at the close of fiscal 2010.
Under the new law, a university’s board of trustees must pass a resolution that outlines the need to borrow money, the maximum amount to be borrowed, and the maximum amount of interest to be paid. The measure requires that the borrowing take place within 90 days and be repaid within one year. Illinois Comptroller Dan Hynes must also approve the financing.
The legislation affects the flagship University of Illinois along with Chicago State University, Eastern Illinois University, Governors State University, Illinois State University, Northern Illinois University, Northeastern Illinois University, Southern Illinois University, and Western Illinois University.
The risk posed by the state’s liquidity problems contributed to the downgrades of five of the eight schools rated by Moody’s in February, while it left a negative watch attached to seven of the schools. The agency recently affirmed the ratings but assigned negative outlooks.
“The new cash-flow borrowing will be a credit positive for the next six to 12 months because it alleviates short-term liquidity stress at the universities and helps the credit-stressed state continue to defer appropriations for higher education,” Moody’s wrote.
The universities may not receive their full 2010 appropriation until the end of calendar 2010. Some of the universities have said they can manage their liquidity needs with cash on hand while several others have said they plan to establish lines of credit. Southern Illinois University, which is owed $100 million, has indicated it will issue up to $75 million of short-term revenue anticipation notes in the coming weeks, according to Moody’s.