CHICAGO Fitch Ratings downgraded Chicago-based Roosevelt University’s rating to the lowest investment grade level citing ongoing negative operations.
The downgrade to BBB-minus from BBB impacts $225 million of debt sold through the Illinois Finance Authority. The outlook is stable. It previously was negative.
The bonds are a general obligation of the school with additional support provided by a cash-funded debt service reserve funded to cover maximum annual debt service and a first lien mortgage on financed facilities.
The rating “reflects the university's fourth consecutive year of negative operating margins, which are weaker than forecasted,” Fitch wrote. “Fiscal 2015 is also expected to be negative.”
Roosevelt's heavy reliance on student-generated revenues makes financial projections dependent on achieving enrollment goals. Enrollment growth has been uneven, with strength in undergraduate but weakness at the graduate level.
“The limited nature of the university's existing financial cushion is a concern, especially relative to its highly leveraged position,” Fitch added.
The university failed to achieve balance in fiscal 2014 due to higher than expected utility expense and one-time bonus payments for university staff. Forecasted results for fiscal 2015 are again expected to be negative based on a generally accepted account principals according to management.
Analysts also raised concerns over the impact on enrollment and management uncertainty due to the university's conversion of it suburban campus to focus on health sciences and the June retirement of the university president.
To support the current rating level, Fitch said enrollment needs to stabilize and generate consistent growth in net tuition income. The university was founded in 1945. Its main campus is in downtown Chicago. A recently opened Wabash building serves as an academic center and provides additional student housing facilities at the downtown campus. The university also owns and operates a 30-acre suburban campus in Schaumburg. Last fall, Roosevelt enrolled 4,814 full-time equivalent students.