Chicago-based Roosevelt University’s slide deeper into junk status continued with yet another downgrade even as the school works to stabilize its operations.

The school was downgraded to Ba3 from Ba1 by Moody’s Investors Service on Friday, affecting nearly $200 million in student revenue bonds that were issued through the Illinois Finance Authority. The outlook remains negative.

Roosevelt does not have any borrowing plans.

Roosevelt University Wabash Building
Roosevelt University has been under financial stress partly because of costs tied to debt it sold to finance its "vertical" campus building in downtown Chicago. James Willamor [CC BY-SA 2.0], via Wikimedia Commons

Fitch Ratings classifies the school BB, with negative outlook.

“The downgrade reflects the university's material structural imbalance, with large operating deficits and insufficient debt service coverage that require draws on the university's reserves,” Moody’s said. “Roosevelt's very high financial leverage and associated fixed costs are becoming increasingly unaffordable as its scale declines.”

“Moody's view reflects that the university is facing a difficult financial test, one that we are responding to aggressively through our Building a Stronger Roosevelt plan which directly addresses the imperative to increase student enrollment, manage the university's debt portfolio and reduce expenses,” said Roosevelt spokeswoman Nicole Barron.

The plan is geared toward reducing expenses and borrowing costs and boosting enrollment, in part by cutting some academic programs and adding others. Barron said that the current ratings actions reflect the time needed for the school’s plan to achieve success. “The university is confident that it will get through these challenging times and that the university will emerge much stronger,” she said.

Moody’s noted in its rating report that the school’s management team has implemented observable expense reductions — including monetizing its real estate holdings to bolster liquidity and repay debt — and is working toward a broader plan to achieve break-even operations by fiscal 2020. Debt service is scheduled to rise $3 million to approximately $19 million in fiscal 2021, according to Moody's.

The rating agency said that the school’s financial reserves and liquidity are sufficient to provide several years to achieve rightsizing objectives. Spendable cash and investment were up 14% in fiscal 2017 due to the sale of university property in downtown Chicago that netted $20 million. The school has since used $15 million in proceeds to pay down long-dated maturities of the Series 2009 bonds.

“The university's continued goal is to balance the budget by FY20,” said Barron. “The past financial challenges created a sense of urgency to not only evaluate current operations but also to seek new opportunities for non-tuition revenues.”

Roosevelt has been under financial stress in recent years partly because of costs tied to debt it sold in 2007 and 2009 through the Illinois Finance Authority that it used to finance its "vertical" campus building in downtown Chicago. At the same time the school has experienced a drop in revenues because of declining student enrollment.

Moody's cut its credit rating to non-investment grade on the bonds, citing falling enrollment, high leverage and costs in November 2016. Fitch junked the ratings in March 2016, citing similar concerns.

The school's full-time equivalent enrollment at 3,867 in fall 2017, has declined 35% since its peak in fall 2009.

“The school’s incoming classes appear to be stabilizing but low retention rates and larger graduating classes are driving declines in total enrollment and net tuition revenue,” Moody’s said.

The school was founded in 1945 and operates out of the historic auditorium building in downtown Chicago and the 32-story "vertical campus." It also operates a campus in suburban Chicago.

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