CHICAGO – The flagship University of Illinois and Illinois State University saw their ratings lowered by S&P Global Ratings Wednesday in the aftermath of its downgrade of the state’s general obligation credit.
S&P dropped the flagship’s ratings on certificates of participation and auxiliary facilities system revenue bonds to A-minus from A and the ratings on its 2009 south campus bonds to AA/A-1 from AA-plus/A-1.
The rating agency also lowered Illinois State’s AFS bonds and COPs to A-minus from A.
All ratings on both universities remain on CreditWatch with negative implications where they’ve been since April 20. The rating agency lowered Illinois last week to the weakest investment grade level of BBB-minus and left the rating on CreditWatch, warning a drop to junk looms if the state enters fiscal 2018 on July 1 without a budget.
The downgrades reflect S&P’s criteria that caps the stand-alone credit profile of each university to three notches above its supporting government’s rating.
The ratings remain on CreditWatch due to uncertainty over whether the state will pass a budget. The state’s public higher education system has received only partial funding for fiscal 2017 under a six-month stopgap budget approved last June.
The rating agency warned that subsequent actions could include a multi-notch downgrade during the CreditWatch period if the state’s rating is lowered.
“We believe that UI and ISU each have demonstrated capacity to operate as fairly independent enterprises in a competitive market, due to a lack of precedent in terms of government intervention or control, and a consistent demonstrated history of making timely debt service payments. As such, the ratings on UI and ISU remain three notches above that of the state,” said analyst Ashley Ramchandani.
In other state-related actions Wednesday, S&P said in a separate report that the state’s AAA rated school districts have largely remained isolated from the state’s budget mess. Most are located in wealthy Chicago suburbs and depend more on property taxes than state aid. Management is strong and professional and voters regularly approve local tax increases.
"Nearly all of the 'AAA' rated school districts in Illinois are mostly immune to the prolonged budgetary dysfunction in Springfield and we do not expect any significant credit deterioration among this select group as a result of the state's fiscal condition,” said analyst Blake Yocom.