S&P Global Ratings lowered its long-term rating and underlying rating (SPUR) three notches to 'B' from 'BB' on Northeastern Illinois University Board of Trustees' outstanding university facilities system (UFS) and certificates of participation (COPS) bonds, issued for Northeastern Illinois University (NEIU). We also placed the ratings on CreditWatch with negative implications.

"The downgrade and CreditWatch status reflect our belief that the state may fail to pass a fiscal 2017 budget by the end of May, which would likely result in zero operating appropriations distributed to the university for the entirety of fiscal 2017," said S&P Global Ratings credit analyst Ashley Ramchandani.

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We understand the university has not received any additional state appropriations for fiscal 2017 beyond the $19.562 million of state operating appropriations and $3.054 million of Monetary Assistance Program (MAP) for the spring semester of fiscal 2016. The receipt of additional appropriations is contingent on the passage of a state budget. We further understand that should the state legislature fail to pass a budget via a simple majority vote by May 31, 2017, a supermajority vote will be required to pass a budget by fiscal year-end, making the likelihood of such passage more remote. NEIU's lack of state funding for fiscal 2017 beyond what was approved on June 30, 2016, has severely constrained the university's revenue base, as approximately 38% of the university's annual unrestricted revenue was derived from state appropriations in fiscal 2016. We believe that given NEIU's current operating environment, the university will likely exhaust working capital and deplete operating reserves by the end of the calendar year, which would further stress the university's liquidity and credit profile.

We currently rate the state of Illinois 'BBB' with a negative outlook. The NEIU downgrade and CreditWatch placement reflect our view of NEIU's deteriorating balance sheet metrics, weak financial performance and its dependence on state appropriations to support operations. Specifically, the downgrade reflects the effects of the state of Illinois' ongoing severe budgetary challenges, as demonstrated by its nearly two-year-long budget impasse, on NEIU's financial position. The negative implications reflect our view of the potential for negative rating action on the university's debt if no further state operating appropriations are received for the remainder of fiscal 2017.

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