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Rating Action:

Moody's places all Illinois public universities on review for downgrade, following State of Illinois downgrade to A3

10 Jun 2013

Approximately $2.5 billion of rated debt affected

New York, June 10, 2013 -- Moody's Investors Service has placed the long-term ratings of all Illinois public universities on review for downgrade - specifically Eastern Illinois University, Governors State University, Illinois State University, Northeastern Illinois University, Northern Illinois University, Southern Illinois University, University of Illinois and Western Illinois University. Placement of the ratings on review for downgrade follows the June 6, 2013 downgrade of the state's general obligation and related credit ratings to A3 negative from A2 negative. Moody's currently rates a total of approximately $2.5 billion of university debt.

SUMMARY RATING RATIONALE

Placement of the Illinois public universities' ratings on review for downgrade reflects the close financial, economic, and governmental/political linkages between the State of Illinois and its public universities. According to our cross-sector rating methodology "How Sovereign Credit Quality May Affect Other Ratings", a government-related institution's (GRI) rating will weaken along with the sovereign or state entity given the high level of support from the state. Financial and economic linkages are reflected by the universities' high reliance on state funding for operations and fringe benefits, which range from 32% to 46% of total operating revenues, as well as extensive appropriation payment delays that pressure the public universities' cash flow and liquidity. Another linkage is that public universities are important drivers of economic development in the state and degree programs are often tailored to particular skills needed for the state's economy. Further, governance linkages include state oversight of governance and management at the state universities, such as appointment of board of trustee members.

The rationale for the downgrade of the State of Illinois to A3 and maintenance of the negative outlook reflects the state's failure to address significant unfunded pension liabilities, our expectation that the state will not take action in the near term to address the large unfunded liabilities, and the legal and political hurdles to legislation that would make the annual funding burden related to pensions more manageable. The negative outlook reflects the sunset provision related to most of the state income tax increases intended to help cover pension costs. For more information on the State of Illinois, please see Moody's report dated June 6, 2013.

Our review of the Illinois public university ratings will focus on the linkages between the state and the public universities, and the expected impact of state financial and budget pressures on the universities' credit strength. In addition, we will evaluate how robust the public university ratings are to further state funding cuts and payment delays. Our review will include an assessment of expected fiscal year (FY) 2013 operating results, budgeted FY 2014 operations, expected fall 2013 enrollment, quality of liquidity, cash flow and reserve levels, projected FY 2013 pledged revenue coverage of debt service, and capital plans with related funding sources, including debt. We expect to include this review within the next 90 days.

RATED DEBT

*Eastern Illinois University:

Auxiliary Facilities System Revenue Bonds: A3 Review for downgrade

Certificates of Participation: A3 Review for downgrade

*Governors State University:

University Facilities System Revenue Bonds: A3 Review for downgrade

Certificates of Participation: A3 Review for downgrade

*Illinois State University:

Auxiliary Facilities System Revenue Bonds: A2 Review for downgrade

Certificates of Participation: A2 Review for downgrade

*Northeastern Illinois University:

University Facilities System Revenue Bonds: A3 Review for downgrade

Certificates of Participation: A3 Review for downgrade

*Northern Illinois University:

Auxiliary Facilities System Revenue Bonds: A3 Review for downgrade

Certificates of Participation: A3 Review for downgrade

Lease Revenue Bonds, Series 1999: A3 Review for downgrade

*Southern Illinois University:

Housing and Auxiliary Facilities System Revenue Bonds: A2 Review for downgrade

Medical Facilities System Revenue Bonds: A2 Review for downgrade

Certificates of Participation: A2 Review for downgrade

*University of Illinois:

Auxiliary Facilities System Revenue Bonds: Aa2 Review for downgrade

Certificates of Participation: Aa2 Review for downgrade

South Campus Development Project Revenue Bonds: Aa3 Review for downgrade

Health Services Facility System Revenue Bonds: A1 Review for downgrade

*Western Illinois University:

Auxiliary Facilities System Revenue Bonds: A2 Review for downgrade

Certificates of Participation: A2 Review for downgrade

PRINCIPAL RATING METHODOLOGIES

The principal methodology used in this rating was U.S. Not-for-Profit Private and Public Higher Education published in August 2011. The additional principal methodology used in rating the special tax bonds was US Public Finance Special Tax Methodology published in March 2012. In addition, How Sovereign Credit Quality May Affect Other Ratings cross-sector methodology published in February 2012 was used to assess linkages between the universities and State of Illinois. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

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.

Diane F. Viacava
VP - Senior Credit Officer
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

Erin Veronica Ortiz
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 places all Illinois public universities on review for downgrade, following State of Illinois downgrade to A3
No Related Data.
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