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Moody’s lowers outlook on University of Chicago’s debt

Updated: January 28, 2014 5:40PM

Moody’s Investors Service has lowered its outlook to negative on the University of Chicago’s debt, citing declining operating performance, potential new debt and the cost of rising debt.

The report, issued Tuesday, also cited “the negative outlook of University of Chicago Medical Center, the university’s academic medical center and partner in University of Chicago Medicine.”

The medical center suffered a 2.9 percent decrease in cash flow in the last fiscal year; got hit by federal and state spending cuts; built a $700 million Center for Care and Discovery, and took on more debt than expected after building a $75 million parking garage, according to a Nov. 19 report in the campus newspaper, The Chicago Maroon.

The Moody’s report said the university could issue up to $400 million in new debt within the next 18 months.

However, Moody’s affirmed its Aa1 rating on the university’s $2.6 billion in outstanding debt, and Fitch Ratings reaffirmed its stable outlook on the debt on Tuesday.

Moody’s Aa1 rating on the Hyde Park university’s debt has stood for at least a decade, and is Moody’s second-highest rating.

In a statement, university Chief Financial Officer Nim Chinniah said, “The University remains among the most highly rated institutions of higher education in the country, reflecting its underlying financial strength, its international academic reputation, and its significant research presence.”

Trustee Tim George, chair of the university’s financial planning committee, said in a statement, “The University’s planning balances programmatic opportunities with financial risks and resources. It is more than a financial plan; it is a long-term strategy for the continued excellence of the University.”

Moody’s report said its negative outlook revision “is driven by weaker university operating performance that is expected to continue despite strong gift revenues, resulting in consolidated thinner cash flow in the face of rising debt service from the university and medical center’s substantial debt burden,” Moody’s said in its report. “The demand on cash flow will be exacerbated with an expected debt issuance within the calendar year. An increasingly important factor in University of Chicago’s credit profile is the impact of (the medical center’s) negative outlook reflecting thinner operating margins driven by a significant increase in transfers to the university that are expected to continue in the near term.”

The medical center has increased its transfers of money to the university — a practice that Moody’s describes as an operating expense, according to the Maroon article.

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