Northwestern University gets a negative outlook on its AAA rating

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CHICAGO — Northwestern University expects improved operating results by fiscal 2021, a goal being sought as its AAA rating is at risk over weakened results and planned borrowing.

S&P Global Ratings affirmed Northwestern University’s AAA rating but revised its outlook for the Evanston, Illinois-based school to negative from stable.


"The outlook revision reflects the university's weaker operational results during the past two years compared with historical operating results, with projections that this will continue in fiscal 2019 and fiscal 2020, and the institution's expectation of increasing short-term debt outstanding during the outlook period through the use of lines of credit and CP," analyst Jessica Wood wrote Thursday.

Total debt outstanding will grow through the use of lines of credit to potentially almost $3 billion during the outlook period “and without a commensurate increase in resources, corresponding balance-sheet ratios could weaken considerably,” Wood added.

The university, which operates campuses in the northern Chicago suburb of Evanston, downtown Chicago, and Qatar, said it’s aiming to return to balanced operating performance by fiscal 2021.

“The university has been in a period of strategic investment as part of its ‘We Will’ campaign,” the university said in a statement. “We are updating a seven-year financial plan to provide greater guidance for resource allocation, so that Northwestern can move forward as one of the world’s premier centers for research, education and public service.”

The university reported in its 2018 financial report that the $3.75 billion fundraising goal from the campaign was met two years ahead of schedule, and resulted in strong investment performance, contributing to a more than $1 billion increase in assets.

S&P said the school’s impressive demand, competitive admissions, strong endowment, strong revenue diversity, still-positive operating performance, continued research strength supported by its medical school, and manageable maximum annual debt service demands support the AAA rating.

Pressures on the rating include only adequate available resources relative to expenses, additional planned borrowing for capital projects during the outlook period that could dilute its financial strengths.

“We could consider revising the outlook to stable during our two-year outlook period if financial operating results return to historical levels, coupled with a material increase in financial resources such that financial resource ratios are more consistent with medians at the 'AAA' rating,” S&P added.

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