Standard & Poor’s last week upgraded Loyola University Chicago to A from A-minus in recognition of its fiscal turnaround and ongoing improvements in its operating performance over the last few years.
The action affects about $263 million of debt.
Analysts wrote that the current rating reflects the university’s strong management team, which succeeded in reversing past operating deficits through effective financial controls and increasing demand, with applications growing at a strong rate. The school’s balance sheet benefits from a growing endowment, with a market value of $371 million and cash and investments of $526 million.
“The stable outlook reflects our expectation that operating performance will continue to be strong, endowment will grow, and demand will continue to improve,” wrote Standard & Poor’s analyst Gwendolyn Shufro.
The university’s challenges include liquidity levels that are weak for a single-A credit and a low matriculation rate of 16% for fall 2007, partly due to strong regional competition for students.
Loyola, founded in 1870 by the Catholic Jesuit order, offers professional degrees in law, business, nursing; and medicine, as well as 52 undergraduate majors, 59 master’s degrees, and 36 doctoral programs. The institution operates three campuses in Chicago. Its medical school is located in the western suburb of Maywood, part of Loyola’s subsidiary Loyola University Health system, which has $376 million of its own debt.
The university last month received final approval from the Illinois Finance Authority to issue up to $95 million of commercial paper to refund $34.8 million of auction-rate securities and fund new projects at its Lake Shore and Water Tower campuses.
Loyola has seen its interest rates rise to nearly 5% from 3.2% due to the collapse of the ARS market adding between $60,000 and $70,000 to the university’s monthly interest costs, according to Susan Bodin, director of strategic financing and risk management. The maximum rate is limited under a formula based on bond indexes under the original bond documents. The ARS are auctioned every 35 days.
The school is using Banc of America Securities LLC as its dealer-placement agent on the offering, which officials expect to market next week with JPMorgan Chase Bank NA providing a letter of credit. Chapman and Cutler LLP is bond counsel and Kenneth Kerznar is financial adviser.
Loyola University of Chicago carries an A2 rating from Moody’s Investors Service.
