CHICAGO – Chicago-based Roosevelt University's rating was dropped further into junk territory over its ongoing enrollment struggles that haven't been helped by the state budget impasse.

Fitch Ratings dropped the school's rating Thursday to BB from BB-plus and assigned a stable outlook. The action impacts $223 million of debt sold through the Illinois Finance Authority in 2007 and 2009.

The downgrade "reflects fiscal 2016 being the university's sixth consecutive year of negative operating margins, with another deficit projected for fiscal 2017," Fitch wrote. "The fiscal 2016 deficit was greater than fiscal 2015 even with an additional distribution from Roosevelt's endowment."

The university's balance sheet provides some limited cushion for management to implement financial and strategic changes, analysts added. The bonds are a general obligation of the university with additional security provisions including a cash-funded debt service reserve that's funded at maximum annual debt service and a first lien mortgage on the financed facilities.

A 2016 enrollment decline is expected to lead to another deficit this year because Roosevelt relies heavily on student-generated revenues. The university has a limited balance sheet combined with high debt leverage. Maximum annual debt service is high at $16 million but an escalating debt service structure brings that number up to $19 million in fiscal 2021.

Fall 2016 headcount was down 12.2% to 4,700 and full-time equivalent enrollment declined by 11% to 3,815.

"Management reports the undergraduate declines are predominantly due to the Illinois' budget impasse, which has delayed distribution of Monetary Award Program need-based funding," Fitch wrote. "While this issue applies to all Illinois public and private universities … Roosevelt was less able than area institutions to replace such grant losses for its students."

Roosevelt is a private institution but its students receive MAP grants.

The university is adjusting its enrollment management strategy to focus more on its historical student base: adult, graduate, and transfer populations. In December 2016, Roosevelt began receiving funds from a $25 million bequest, which will be used strictly for scholarships. The gift will essentially provide $1.2 million in scholarships annually.

Fitch dropped Roosevelt into speculative territory last year and Moody's Investors Service followed later in the year. Moody's rates the school's $180 million of 2009 bonds Ba1 and $45 million of 2007 bonds Ba2. The outlook remains negative.

Roosevelt University was founded in 1945 and offers undergraduate, graduate, and professional degree programs at its campuses in downtown Chicago, at a northwest suburb, and online. Much of the not-for-profit school's debt was issued to finance its new "vertical" campus building in downtown Chicago. The school has turned to new leadership in an effort to stabilize operations.

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