S&P Global Ratings lowered its long-term and underlying ratings to 'BBB-' from 'BBB' on Bourbonnais Village, Ill.'s series 2007, 2010, and 2013 revenue bonds issued for Olivet Nazarene University (ONU or the university).The outlook is negative.
"We lowered our rating based on our view of the university's deteriorating credit fundamentals, particularly steady declines in its available resources to levels inconsistent with the 'BBB' rating, and the application of our updated criteria published Jan. 6, 2016," said S&P Global Ratings analyst Shivani Singh.
We assessed ONU's enterprise profile as strong characterized by its niche as a Christian-centered university, good programmatic diversity, historically growing enrollment and a stable and seasoned senior management team. This is partly mitigated by a modest enrollment decrease in fall 2016 and cyclicality in the university's nontraditional and graduate student base. We assessed the university's financial profile as vulnerable, given its slim and weakened available resource ratios over time, full-accrual operating deficit in fiscal 2016, and limited revenue diversity. Combined, we believe these credit factors lead to an indicative standalone credit profile of 'bbb-' and final rating of 'BBB-'.
"The negative outlook reflects our view of a potential further downgrade in the next year or two if projected financial improvements as indicated by management, specifically related to operating performance and available resources, do not materialize within the outlook period," added Ms. Singh.
All references to fiscal 2016 are based on audited financials. While the foundation's financial operations are consolidated in the university audit, our available resource calculations cited in this report include the foundation assets, liabilities and net assets, while operating performance reflects university-only financial results.
S&P Global Ratings could lower the rating further if one or more of the following occur, including full-accrual operating deficits that are sustained at or increase beyond current levels, or if enrollment weakens from current levels, or if there are further decreases in available resources. In addition,
if liquidity becomes constrained, we could lower the rating.
We do not expect to raise the rating over the outlook period due to the overall vulnerable financial profile, which while projected to improve based on management's projections, is unlikely to materially improve over the outlook period. We could revise the outlook to stable if ONU can demonstrate
steady improvement in its available resource ratios from the June 30, 2016, level, and if it improves its full-accrual operating performance in line with projections, and recovers from the enrollment decrease in fall 2016.
ONU is a private, coeducational institution of higher learning serving 4,953 headcount students (4,086 FTE) in fall 2016. Established in 1907, the university provides a Christian-centered education to undergraduate and graduate students in a broad range of traditional, pre-professional, and professional programs, including nursing, business, engineering, and pre-medicine. It is one of eight U.S. universities affiliated with the Church of the Nazarene, each representing its respective regional governing district within the church.
