08-12-2013, 09:14 AM
If anyone is interested, below is Moody's review of NIU. Moody's downgraded SIU to A3, EIU to Baa1, ISU to A3, U of I to Aa3, WIU to Baa1, Northeastern Illinois Univ to Baa1, and Governors State Univ to Baa1 (all have a negative outlook).
Global Credit Research - 09 Aug 2013
$216.8M debt affected
New York, August 09, 2013 -- Moody's Investors Service has confirmed Northern Illinois University's (NIU) A3 rating. The rating outlook is negative. The rating action affects $216.8 million of Auxiliary Facilities System Revenue and Lease Revenue Bonds outstanding as of fiscal yearend 2012. The confirmation reflects NIU's position as the third largest university in Illinois, operating performance which provides adequate debt service coverage, and improving liquid reserves which provide some flexibility to manage current challenges. These partially mitigate the impact of a high reliance on the State of Illinois (GO A3 negative) which, for many years in succession, has delayed the payment of annually appropriated funds. The negative outlook is based on the potential negative impact of continued pressures on state funding, combined with declining enrollment and recent leadership changes during a period of volatility.
Today's action concludes the review for downgrade initiated on June 10, 2013.
SUMMARY RATING RATIONALE
The A3 rating is based on NIU's market position as the third largest public university in the state (based on operating revenue), adequate cash flow margins and debt service coverage, no future debt plans, and a demonstrated ability to absorb reductions or significant delays in state funding. The A3 rating also incorporates NIU's high dependence on state appropriations, multiple years of enrollment declines with expectations for further pressure, relatively leveraged balance sheet, and the recent leadership transitions in the university's finance department. The risk of ongoing reduced or delayed state funding layered onto the enrollment challenges lead to the ongoing negative outlook for the university.
CHALLENGES
*NIU is highly reliant on operating support from the State of Illinois (GO A3 negative), representing 37.5% of FY 2012 operating revenues (including "on-behalf payments"), and continues to experience delays in state operating appropriations.
*The university is vulnerable to the impact of pension reform at the state level. If pension reform is passed, NIU may need to fund a portion of its pension expense, possibly as early as FY 2015. If pension reform fails to be enacted, we expect continued pressure on state operating appropriations.
*The university's challenging student market and weak state demographics have led to a 10% decline in full-time equivalent (FTE) enrollment over the past four years and flat net tuition revenue in FY 2012. NIU expects a larger freshmen class for fall 2013, but a slight decline in overall FTE.
*Direct debt increased 125% from FY 2010 to FY 2012 resulting in narrower expendable financial resource coverage of debt, at 0.42 times in FY 2012, which is the weakest coverage among the rated Illinois public universities.
*The university is in the process of restructuring the management hierarchy of its finance and administration departments. This ongoing transition may challenge the university's ability to manage through the pressured state funding and enrollment environment.
STRENGTHS
*NIU is the third largest public university in Illinois based on operating revenues and offers multiple undergraduate and graduate programs. Total FTE enrollment was 18,034 in fall 2012.
*The university has maintained modest but adequate cash flow and debt service coverage for the rating level despite delayed state appropriations. Cash flow was 8.8% in FY 2012 and is expected to be similar in FY 2013. Operations will need to be carefully managed in the face of an uncertain state funding environment and constrained growth of net tuition revenue.
*Expendable financial resources grew a strong 17% last year, to $165.6 million in FY 2012, primarily due to net asset growth at the foundation. Monthly liquidity also grew 30% last year to $156.4 million, providing 108 days cash on hand. Improved liquidity is a credit strength particularly given the delays in state funding.
*All debt is fixed rate and the university does not have future debt plans.
Outlook
The negative outlook reflects NIU's high reliance on state appropriations in an uncertain state funding environment, as well as pressured student market and stagnant net tuition revenue.
WHAT COULD MAKE THE RATING GO UP
An upgrade in NIU's rating is unlikely due to the state funding pressures and enrollment declines.
WHAT COULD MAKE THE RATING GO DOWN
A downgrade of NIU's rating could result from the deterioration of the state's operating or on-behalf payment support or an increase in the risk that such support will be reduced in the future. It could also be driven by further enrollment declines, weakened cash flow, or reduced liquidity.
Global Credit Research - 09 Aug 2013
$216.8M debt affected
New York, August 09, 2013 -- Moody's Investors Service has confirmed Northern Illinois University's (NIU) A3 rating. The rating outlook is negative. The rating action affects $216.8 million of Auxiliary Facilities System Revenue and Lease Revenue Bonds outstanding as of fiscal yearend 2012. The confirmation reflects NIU's position as the third largest university in Illinois, operating performance which provides adequate debt service coverage, and improving liquid reserves which provide some flexibility to manage current challenges. These partially mitigate the impact of a high reliance on the State of Illinois (GO A3 negative) which, for many years in succession, has delayed the payment of annually appropriated funds. The negative outlook is based on the potential negative impact of continued pressures on state funding, combined with declining enrollment and recent leadership changes during a period of volatility.
Today's action concludes the review for downgrade initiated on June 10, 2013.
SUMMARY RATING RATIONALE
The A3 rating is based on NIU's market position as the third largest public university in the state (based on operating revenue), adequate cash flow margins and debt service coverage, no future debt plans, and a demonstrated ability to absorb reductions or significant delays in state funding. The A3 rating also incorporates NIU's high dependence on state appropriations, multiple years of enrollment declines with expectations for further pressure, relatively leveraged balance sheet, and the recent leadership transitions in the university's finance department. The risk of ongoing reduced or delayed state funding layered onto the enrollment challenges lead to the ongoing negative outlook for the university.
CHALLENGES
*NIU is highly reliant on operating support from the State of Illinois (GO A3 negative), representing 37.5% of FY 2012 operating revenues (including "on-behalf payments"), and continues to experience delays in state operating appropriations.
*The university is vulnerable to the impact of pension reform at the state level. If pension reform is passed, NIU may need to fund a portion of its pension expense, possibly as early as FY 2015. If pension reform fails to be enacted, we expect continued pressure on state operating appropriations.
*The university's challenging student market and weak state demographics have led to a 10% decline in full-time equivalent (FTE) enrollment over the past four years and flat net tuition revenue in FY 2012. NIU expects a larger freshmen class for fall 2013, but a slight decline in overall FTE.
*Direct debt increased 125% from FY 2010 to FY 2012 resulting in narrower expendable financial resource coverage of debt, at 0.42 times in FY 2012, which is the weakest coverage among the rated Illinois public universities.
*The university is in the process of restructuring the management hierarchy of its finance and administration departments. This ongoing transition may challenge the university's ability to manage through the pressured state funding and enrollment environment.
STRENGTHS
*NIU is the third largest public university in Illinois based on operating revenues and offers multiple undergraduate and graduate programs. Total FTE enrollment was 18,034 in fall 2012.
*The university has maintained modest but adequate cash flow and debt service coverage for the rating level despite delayed state appropriations. Cash flow was 8.8% in FY 2012 and is expected to be similar in FY 2013. Operations will need to be carefully managed in the face of an uncertain state funding environment and constrained growth of net tuition revenue.
*Expendable financial resources grew a strong 17% last year, to $165.6 million in FY 2012, primarily due to net asset growth at the foundation. Monthly liquidity also grew 30% last year to $156.4 million, providing 108 days cash on hand. Improved liquidity is a credit strength particularly given the delays in state funding.
*All debt is fixed rate and the university does not have future debt plans.
Outlook
The negative outlook reflects NIU's high reliance on state appropriations in an uncertain state funding environment, as well as pressured student market and stagnant net tuition revenue.
WHAT COULD MAKE THE RATING GO UP
An upgrade in NIU's rating is unlikely due to the state funding pressures and enrollment declines.
WHAT COULD MAKE THE RATING GO DOWN
A downgrade of NIU's rating could result from the deterioration of the state's operating or on-behalf payment support or an increase in the risk that such support will be reduced in the future. It could also be driven by further enrollment declines, weakened cash flow, or reduced liquidity.