Moody's Investors Service said it has downgraded the ratings of Governors State University, Ill., and Northeastern Illinois University to A3 from A2 on their university facility system revenue bonds and certificates of participation and concluded the reviews for possible downgrade.

The rating outlooks are stable at the lower rating.

Moody's also downgraded to A3 from A2 its ratings on Northern Illinois University's auxiliary facility system revenue bonds and Series 1999 lease revenue bonds and removes ratings from review for downgrade. The outlook is revised to negative.

Moody's downgraded Eastern Illinois University's ratings to A3 from A2 on its auxiliary facility system revenue bonds and certificates of participation and concluded review for possible downgrade. The rating outlook is stable at the lower rating.

The ratings were placed under review for possible downgrade on December 18, 2012, following the revision of the state of Illinois' general obligation outlook to A2/negative from A2/stable on December 13, 2012. The under review for possible downgrade action reflected significant dependence on the state for operating funds in a challenging budget environment and continued extensive appropriation payment delays placing material pressure on the liquidity of the Illinois public universities.

The downgrade of GSU's ratings to A3 reflects significant reliance on state appropriations, representing a very high 46% of operating revenues and the university's largest revenue stream (including on-behalf payments), as well as the university's modest operating base, balance sheet and enrollment. The stable outlook incorporates improved liquidity and a solid expendable financial resources cushion to debt and operations despite the small size of the relative value of its balance sheet. The rating and outlook also reflect Moody's expectation the university will continue to generate healthy operating performance, cash flow, and debt service coverage.

The downgrade of NEIU's ratings to A3 reflects significant reliance on state appropriations, representing a very high 46% of operating revenues and the university's largest revenue stream (including on-behalf payments), highly competitive market position and declining enrollment and a moderate balance sheet. The stable outlook reflects Moody's expectation that management will maintain positive operating performance and healthy debt service coverage and that liquidity will remain adequate given a modest balance sheet.

The downgrade of NIU's ratings to A3 from A2 is driven by the state of Illinois' A2 rating and negative outlook given that a high 37.5% of NIU's operating revenue comes from state appropriations (including on-behalf payments) and the governor has proposed further cuts to state operating funds for FY 2013.

Also driving the downgrade are turnover in senior financial leadership over the past year and ongoing legal investigations; multiple years of enrollment declines, with a 10% decline in FTE over the past three years and stagnant net tuition revenue in FY 2012.

Further, NIU demonstrates the weakest expendable financial resource coverage of direct debt for all Illinois public universities.

The A3 rating also reflects NIU's market position as the third largest public university in the state (based on operating revenue), adequate cash flow and debt service coverage despite declines and delays in state appropriations, satisfactory liquidity mitigating potential further state cuts and delays, and no additional near-term debt plans.

The negative outlook reflects the negative outlook of the state and the expectation that the university will be challenged to manage through the pressured state funding and student market environment given the recent leadership changes, which could result in more narrow operating performance.

The downgrade of EIU's ratings to A3 is driven by the university's significant dependence on state appropriations (41.1%) and the revision of the state's outlook to negative, thin unrestricted liquidity, deeper enrollment declines compared to the other regional public universities and management's projection of stagnant to declining net tuition revenue in FY 2013.

The stable outlook reflects Moody's expectation that the university will continue to generate positive operating performance, maintain sufficient debt service coverage, and there will be no new money debt issuance or draw down of cash.

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