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Moody’s downgrades debt ratings for 7 Illinois public universities

The University Illinois Urbana-Champaign

The University of Illinois at Urbana-Champaign

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Updated: September 15, 2013 6:21AM



Bond-rating agency Moody’s has downgraded debt ratings for seven of Illinois’ eight public universities. And Moody’s said the state’s fiscal and pension woes may cause further declines in the next 12 to 24 months.

The universities rely heavily on funding from Illinois, which in June slid to Moody’s lowest bond rating in the nation and the lowest in Illinois’ history because of its underfunded pensions and record of slow payments of appropriated funds, Moody’s spokesman David Jacobson said Tuesday.

The universities involved in the downgrade, which Moody’s issued on Friday, are the University of Illinois; Eastern Illinois University; Governors State University; Illinois State University; Northeastern Illinois University; Southern Illinois University, and Western Illinois University. Moody’s issued no change in Northern Illinois’ A3 rating.

None of the universities’ ratings is in junk-bond territory, so for now, the impact is limited and none is at risk of default. Indeed, the University of Illinois’ Aa3 rating is three notches higher than the state’s rating, and it boasts strong student demand and a growing balance sheet, Jacobson said.

But Jacobson said the state’s lack of a pension fix and continued slow payments keep the ratings under pressure because the state itself may suffer another downgrade.

The universities’ ratings, their Moody’s-rated debt totals, and their dependence on state funds are as follows:

◆ University of Illinois: Downgrade to Aa3 from Aa2; $1.56 billion of debt; more than 30 percent of fiscal year 2012 operating revenues came from the state.

◆ Eastern Illinois: Downgraded to Baa1 from A3; $121 million of debt; 41 percent of fiscal year 2012 operating revenues came from the state.

◆ Governors State: Downgraded to Baa1 from A3; $23 million in debt; 46 percent of fiscal year 2012 operating revenues came from the state.

◆ Illinois State: Downgraded to A3 from A2; $132 million of debt; 38 percent of operating revenues from the state.

◆ Northeastern Illinois: Downgraded to Baa1 from A3; $63 million of debt; 46 percent from the state.

◆ Southern Illinois: Downgraded to A3 from A2; $318 million of debt; 40.8 percent from the state.

◆ Western Illinois: Downgraded to Baa1 from A2; $27 million of debt; 41 percent from the state.

University representatives said Tuesday they are disappointed but remain hopeful the state will resolve its fiscal woes.

“The immediate impact from the downgrade on our finances is limited because the majority of the institution’s debt is a fixed-interest rate that will not be affected,” the University of Illinois said in a statement. “The impact of the change will be measured when the U of I sells bonds in the future, such as for the hospital and Assembly Hall, depending on market conditions at the time of each sale.”

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