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Rating Action:

Moody's affirms Southern Illinois' Baa1 HAFS bonds and COPs; outlook negative

24 Feb 2016

New York, February 24, 2016 -- Summary Rating Rationale

Moody's Investors Service affirms the Baa1 rating on Southern Illinois University's (SIU) Housing and Auxiliary Facilities System (HAFS) Revenue Bonds and Certificates of Participation (COPs). The outlook is negative.

The affirmation of the Baa1 ratings reflect SIU's sizeable operating scope and scale benefiting from a good market draw as a large, multi-campus comprehensive public university. A modest debt burden, strong cash management and prudent budget practices mitigate challenges of the current budget impasse and likely ongoing declines in state operating appropriations. While unrestricted liquidity is thin and reliance on state funding is high, we expect the university to remain in a positive cash position at fiscal year-end 2016 in addition to having access to other liquid resources internally and at its foundation which it could access if necessary.

In addition, the HAFS bonds benefit from healthy cash flow and strong and growing reserves retained in a closed system. Given SIU's material reliance on state funding and limited unrestricted liquidity, the COPs ratings will remain sensitive to maintaining sufficient unrestricted reserves relative to annual debt service.

Rating Outlook

The negative outlook reflects ongoing pressure on unrestricted liquidity in the absence of state funding disbursements and a state budget, as well as the expectation for ongoing constraints on liquidity given a likely cut in state appropriations.

Factors that Could Lead to an Upgrade

Substantial and sustained growth of liquid reserves

Greater revenue diversification combined with stronger operating cash flow, demonstrating the ability to withstand reduced reliance on state support

Factors that Could Lead to a Downgrade

Further deterioration of the state's credit quality

Significant decline in state appropriations, including on-behalf payments, or timing delays of disbursements that materially harms operating performance or the ability to pay debt service

Inability to replace material use of reserves

Legal Security

The Certificates of Participation (COPs) are payable from the university's broad budget, and the obligation to pay can only be terminated in the event that the university does not receive sufficient state appropriations and does not have other legally available funds. The university has covenanted to request funds sufficient to pay debt service from the Illinois General Assembly in its annual operating budget request, and further covenants to include in each annual operating budget of the university an amount of legally available non-appropriated funds that, when combined with state appropriated funds, will be sufficient to cover debt service. Legally available funds include student tuition (subordinate to the pledge to the Housing Auxiliary Facilities System and Medical Facilities System), certain fees, allowable grants, and investment income. The university established a mandatory per credit hour facilities maintenance fee, which management allocates a portion of these revenues to pay a portion of the debt service on the COPs.

The Housing and Auxiliary Facilities System (HAFS) Revenue Bonds are secured by a pledge of and lien on the net revenues of the auxiliary system, pledged tuition (equal to MADS), the bond and interest sinking fund account, and the repair and replacement reserve account. The auxiliary system includes housing capacity for nearly 8,200 students, student unions, recreation and fitness centers, as well as a variety of other academic and student services on both campuses, and the parking facilities at Edwardsville. There is a rate covenant requiring that the net revenues and pledged tuition shall be equal to 120% of MADS. Unaudited net revenues and pledged tuition for FY 2015 will provide 2.5 times coverage of MADS. There is also an additional bonds test of 120% of MADS. HAFS is a "closed" system, meaning that excess revenues generated by the HAFS cannot be applied to debt service for any other purpose. HAFS reserves were $78 million at FYE 2015.

Use of Proceeds

Not applicable

Obligor Profile

SIU a large comprehensive university with undergraduate programs in liberal arts, education, science, business, agricultural sciences, communications, and engineering and also offers many graduate and professional degrees, in areas including business, law, pharmacy, medicine, dental and nursing. Fall 2015 total headcount enrollment was 31,557 students across its flagship Carbondale (SIUC) campus, Edwardsville (SIUE), and medical campuses with total operating revenue over $1.15 billion.

Methodology

The principal methodology used in this rating was Global Higher Education published in November 2015. Please see the Ratings Methodologies page on www.moodys.com for a copy of this methodology.

Regulatory Disclosures

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Erin Ortiz
Lead Analyst
Higher Education
Moody's Investors Service, Inc.
7 World Trade Center
250 Greenwich Street
New York 10007
US
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Susan Fitzgerald
Additional Contact
Higher Education
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's affirms Southern Illinois' Baa1 HAFS bonds and COPs; outlook negative
No Related Data.
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