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Rating Action:

Moody's downgrades Western Illinois University, IL to Baa1; outlook negative

Global Credit Research - 09 Aug 2013

$27M debt affected

New York, August 09, 2013 -- Moody's Investors Service has downgraded Western Illinois University (WIU) to Baa1 from A2. The rating action affects $27 million of Auxiliary Facilities System Revenue Bonds and Certificates of Participation. The rating outlook is negative. The downgrade reflects the university's high reliance on the State of Illinois (GO A3 negative) which, for many years in succession, has delayed the payment of annually appropriated funds, enrollment declines and narrowed operating performance. The negative outlook is based on the potential negative impact of continued pressures on state funding and further enrollment declines.

Today's action concludes the review for downgrade initiated on June 10, 2013.

SUMMARY RATING RATIONALE

The Baa1 rating reflects Western Illinois University's highly competitive market and pressures on enrollment, weak liquidity. The rating also incorporates high dependence on state appropriations, representing 41% of operating revenue. These credit challenges are balanced by WIU's currently positive operating cash flow which provides healthy debt service coverage for a moderate amount of outstanding debt.

CHALLENGES

*WIU is highly dependent on support from the State of Illinois (A3 negative), with state appropriations including "on-behalf payments" for employee benefits representing 41% of FY 2012 operating revenue. For multiple years in a row, the state has delayed payments of annually appropriated funds which will likely continue to pressure the university.

*The university is also exposed to the impact of pension reform at the state level. If pension reform is passed, WIU 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.

*Challenging state demographics and a highly competitive student market has led to declining enrollment, limiting tuition revenue growth. Management expects lower enrollment in Fall 2013.

*The university has thin liquidity with just 75 monthly days cash on hand at June 30, 2012. While we believe WIU has demonstrated strong liquidity management, this thin liquidity is a particular credit challenge given the state's payment delays.

STRENGTHS

*WIU continues to generate positive operating margins, averaging 4.9% for the three fiscal years ending June 30, 2012. Improved operating cash flow of 10.7% led to a solid 3.5 times debt service coverage in FY 2012.

*Management has a demonstrated commitment to generating operating surpluses despite revenue pressures and containing expense growth.

*WIU's two separate campuses, each of which serve a different population, supported enrollment of 10,622 full-time equivalent students in Fall 2012.

*The university has no additional debt plans in the next two years and an all fixed-rate debt structure.

Outlook

The negative outlook is based on the likelihood of continued pressured state funding combined with expectations of enrollment declines and narrowing operating margins and cash flow.

WHAT COULD MAKE THE RATING GO UP

An upgrade in the rating is unlikely given the ongoing risk of state funding pressures for the university.

WHAT COULD MAKE THE RATING GO DOWN

The rating could be downgraded due to weakening of operating performance and/or liquidity due to state funding pressures or enrollment declines.

PRINCIPAL RATING METHODOLOGY

The principal methodology used in this rating was U.S. Not-for-Profit Private and Public Higher Education published in August 2011. Please see the Credit Policy 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 rating action on the support provider and in relation to each particular 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 Veronica Ortiz
Analyst
Public Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Emily Schwarz
Asst Vice President - Analyst
Public Finance Group
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 downgrades Western Illinois University, IL to Baa1; outlook negative
No Related Data.

 

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