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