CHICAGO – The Illinois Institute of Technology is one step closer to losing its investment grade rating after a downward outlook revision.

Moody's Investors Service Wednesday revised its outlook to negative from stable on the school's rating of Baa3, which is the lowest investment grade.

The downgrade impacts the school's $149 million 2006 bonds and a $27 million 2009 series, both issued through the Illinois Finance Authority. The school's 2002 bonds are not impacted by the downgrade because they are rated based on a direct pay letter of credit.

"The revision of the outlook to negative is driven by a material decline in IIT's financial reserves and weakened liquidity position," Moody's said of the research institution located south of downtown Chicago.

The school is struggling with thin operating performance and liquidity and high financial leverage with "limited prospects to materially grow liquidity or improve operations in the near term as it confronts increased competition," analysts wrote.

The school operates in a competitive market for students and has a high international enrollment, exposing it to possible enrollment volatility.

"Affirmation of the Baa3 rating reflects the institute's sizeable operations relative to the rating category, historically successful philanthropic support, and favorable market attributes as a Chicago-based comprehensive university with a niche in science and technology related programs," Moody' added.

A further weakening of liquidity or increased reliance on lines of credit or a failure to improve operating performance in fiscal 2017 could drive a downgrade to speculative grade territory.

IIT's debt is an unsecured general obligation.

The 2009 bonds enjoy a cash-funded debt service reserve fund. The school offers baccalaureate, masters, and doctoral programs in engineering, science, psychology, architecture, business, communications, industrial technology, information technology, design and law.

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