CHICAGO – The University of Illinois is preparing to refund $116 million of debt while highlighting to investors what it describes as diverse revenues and growing enrollment that have lessened the strains of coping with the state's budget mess.
The refunding of certificates of participation is expected to generate nearly 4% in present value savings for the state's flagship university, according to Robert Plankenhorn, assistant vice president for treasury operation. The pricing is expected Thursday with Morgan Stanley as senior manager and Siebert Cisneros Shank as a co-manager.
U of I, like the state's other eight public universities, has struggled as state aid for fiscal 2016 and 2017 was delayed amid the state's ongoing budget impasse. Authorizations approved in the spring and in June fell short of previous funding levels.
Lawmakers are expected to return to work early next year in hopes of bridging their partisan divide with Gov. Bruce Rauner to adopt a fully funded budget for fiscal 2016 and 2017.
The university's ratings have fallen over the strain, but not as harshly as other Illinois state universities.
It benefits from three years of revenue growth through fiscal 2015 thanks in part to tuition growth and benefitted from $2.1 billion of liquidity as of June. The school receives about $725 million in federal grant funding.
"The university continues to carefully monitor cash flows and operating expenditures and cannot predict whether there will be an additional appropriation for fiscal 2017," Plankenhorn told potential investors in a recorded presentation.
Enrollment is 80,000 at its three campuses, up 4.9 % over the last five years.
"This trend has helped the university navigate the state's financial difficulties," Plankenhorn said.
That stands in contrast enrollment declines at Eastern Illinois University, Southern Illinois University, Northern Illinois University, Western Illinois University and Illinois State University.
Ahead of the sale, Moody's Investors Service affirmed the university's Aa3 rating and negative outlook on both the COPs and the school's $1.1 billion of auxiliary facility system revenue bonds.
The rating incorporates the university's notable scale with over $5.5 billion of revenues, relatively strong overall wealth levels and modest debt burden.
"U of I's rating is nonetheless constrained by its exposure to the State of Illinois' financial challenges as a third of its operating budget, including on behalf payments for pension and other post-retirement benefits, is derived from state funding," Moody's wrote. "While U of I has some ability to grow student related revenues based on its still strong reputation, prolonged budget challenges will more materially impair its strategic positioning and longer term financial health."
Capital funding remains constrained with work on a new state capital program taking a backseat to the budget mess. The school has no new money borrowing plans in the near-term. The university is also vulnerable to the state through its health system due to delays in state Medicaid reimbursements.
S&P Global Ratings affirmed the school's A-plus rating and negative outlook.
"We believe that UI has sufficiently demonstrated its capacity to operate as a fairly independent enterprise in a competitive market, with a lack of precedent in terms of governmental intervention or control and favorable reserves that would allow UI to continue to pay debt service in case of a significant delay or reduction in state appropriations," S&P said.
"The negative outlook reflects our view of the weakening financial situation in Illinois, and the potential for negative rating actions on the university due to the prolonged state impasse and budgetary challenges."
