* From David Jacobson, Vice President Communications – Public Finance Group, Moody’s Investors Service…
Late yesterday, Moody’s announced it was placing all seven of its rated public universities in Illinois under review for downgrade because of the state’s failure to enact a budget providing full operating funding to the universities for the current fiscal year FY 2017 and the resulting operational and liquidity strains on the universities. The total debt affected by these rating actions is $2.2 billion.
Moreover, we have already downgraded Northeastern Illinois University two notches from Ba2 to B1 because of the university’s continued rapid liquidity deterioration due to weakened cash flow, caused in part by the protracted state budget impasse. With continued pressure on enrollment and sustained state funding uncertainty, the university has limited avenues by which it can improve its liquidity position over the medium term. Northeastern Illinois’ B1 rating also remains under review for downgrade.
We expect to conclude these reviews within 90 days. Reviews will focus on each university’s exposure to continuing state budget pressure given failure of the state to adopt a budget for the current fiscal year and the resulting use of each university’s own liquidity to bridge the funding shortfall. This includes an assessment of projected liquidity and operating performance for each university for the June 30, 2017 fiscal year-end. We will review contingency plans and other expense actions initiated to cope with the shortfall in state operating appropriations. Also included in the reviews are budgeted FY 2018 operations and assumptions. We will also assess each university’s near-term debt service commitments against pledged revenues and related reserves.
The result of the review could result in differing actions, including some potential multi-notch rating actions depending on liquidity and ongoing ability to adjust to the prolonged lack of state operating funding.
…Adding… Some context from Elizabeth Campbell at Bloomberg…
Four of the seven already have junk ratings on their bonds, while two others are within one or two levels of losing their investment-grade status. Only debt from the state’s flagship institution, the University of Illinois, is rated more than three steps above junk. The review affects $2.2 billion of debt and threatens to leave the universities facing increased borrowing costs if investors demand higher yields to compensate for the risk. […]
Moody’s also lowered Northeastern University deeper into junk on Monday, dropping its rating by two steps to B1, four levels below investment grade.
- Gruntled University Employee - Tuesday, Apr 18, 17 @ 9:34 am:
I wish this would move Rauner off center, it won’t but that’s my wish.
- Norseman - Tuesday, Apr 18, 17 @ 9:37 am:
More evidence of the damage to higher education caused by Rauner. The surprising thing is the acquiescence of GOP legislators to this destruction of a vital asset in their districts.
- illini - Tuesday, Apr 18, 17 @ 9:37 am:
Yesterday we were talking about how we were talking about how we were killing ourselves by not funding Higher Ed.
And today we get this headline and story.
I can’t wait to see tomorrows big story!
- walker - Tuesday, Apr 18, 17 @ 9:38 am:
Those brothers can be headaches. /s
- Skeptic - Tuesday, Apr 18, 17 @ 9:38 am:
Winning!
- Blue Bayou - Tuesday, Apr 18, 17 @ 9:40 am:
It is the definition of insanity to believe that this is a successful outcome for a businessman to run a state government.
It’s malpractice. It’s inhumane. And it’s terrible for the economy in the sort and long run.
Business and government need to be kept separate, like church and state.
- Huh? - Tuesday, Apr 18, 17 @ 9:46 am:
Meh, 1.4% said he doesn’t work for the bonding companies, so he doesn’t care about the ratings.
- DuPage Bard - Tuesday, Apr 18, 17 @ 9:51 am:
Went to Dartmouth- Rauner Library, Rauner Dorm- he doesn’t care about public universities.
BTW it’s Madigan’s fault also.
- don the legend - Tuesday, Apr 18, 17 @ 10:00 am:
Rauner is completely aware and fully understands the inevitable bond rating downgrade. Completely knows and understands. Dems need to name those republican members who are equally culpable for this imminent failure of higher ed. Expose them all day every day. Turn up the heat!
- AnonymousOne - Tuesday, Apr 18, 17 @ 10:13 am:
Who’s next to decimate? Someone, surely. What will it take to stop this recklessness?
- Oswego Willy - Tuesday, Apr 18, 17 @ 10:24 am:
Perspective?
Rauner, in 2014…
===“Illinois’ credit rating has been downgraded 13 times under Pat Quinn and now, because of his failed leadership, our state’s economy and finances are still broken. Pat Quinn put special interest politics ahead of Illinois workers. We need to change direction before it’s too late.” – Rauner campaign spokesperson Mike Schrimpf […]===
Understand, Rauner, as a candidate, made sure “Quinn fails” was the message.
The Democrats need to work on messaging, as Rauner continually wins, even when Rauner’s own words in 2014 says “governors own”
The lede, buried, is that Rauner, passively, is destroying Illinois higher education, so one can guess(?) Rauner is pleased by this.
Why would I say pleased?
Rauner can stop all this.
At any time.
- Patchin - Tuesday, Apr 18, 17 @ 10:35 am:
“Purolpisrly”
- A guy - Tuesday, Apr 18, 17 @ 11:09 am:
This gives me the Moody Blues.
- DuPage - Tuesday, Apr 18, 17 @ 12:57 pm:
Rauner’s buddies will all cash in on the higher interest rates the state universities will have to pay. Good for the .01%ers, bad for students, parents, the universities, and the state of Illinois.
- Anonymous - Tuesday, Apr 18, 17 @ 1:11 pm:
Downgrades, portfolio churning…sounds like something from a Citadel Fortress wish list.
- Anonymous - Tuesday, Apr 18, 17 @ 3:10 pm:
=Rauner’s buddies will all cash in on the higher interest rates…..=
Just part of the grand plan.
- wordslinger - Tuesday, Apr 18, 17 @ 4:38 pm:
Social Darwinism.
- Observant27 - Tuesday, Apr 18, 17 @ 4:52 pm:
IL universities have been mismanaged for decades. If the bubble wasn’t bursting now, it would be in just another few years. Time to hold public institutions just as accountable as those sustained by private dollars. Our universities have failed providing quality education at an affordable rate. Instead, they build, spend and indoctrinate. Not on my dime - any longer.
- Arthur Andersen - Tuesday, Apr 18, 17 @ 5:06 pm:
The Google wasn’t too helpful on this, but the U of I Auxiliary Facilities Revenue Bonds are pretty solid. Funded by student fees and a piece of revenue from State Farm Center, Memorial Stadium, Krannert, Illini Union and a few I can’t remember.
Owned some in the past and wouldn’t hesitate to buy again.
- Oswego Willy - Tuesday, Apr 18, 17 @ 5:07 pm:
- Observant27 -
Which university did Rauner say he wanted closed?
I missed that…