Western Illinois University Debt Ratings Lowered Three Notches To #BB-# On State Budget U On Watch Neg

Stocks and Financial Services Press Releases Friday April 21, 2017 09:09
CHICAGO--21 Apr--S&P Global Ratings

CHICAGO (S&P Global Ratings) April 20, 2017--S&P Global Ratings lowered its long-term rating and underlying rating (SPUR) three notches to 'BB-' from 'BBB-' on Western Illinois University Board of Trustees' series 2010, 2012, and 2016 auxiliary facilities system (AFS) revenue bonds, issued for Western Illinois University (WIU). S&P Global Ratings also lowered its SPUR to 'BB-' from 'BBB-' on the university's series 2010 and 2015 certificates of participation (COPs). We placed all ratings on CreditWatch with negative implications. We view both the AFS and the COPS bond security pledge as equivalent to an unlimited student-fee pledge and therefore we rate both the same.

"The downgrade and CreditWatch status reflect our belief that the state may fail to pass a fiscal 2017 budget by the end of May, which would likely result in no additional operating appropriations distributed to the university for the remainder of fiscal 2017," said S&P Global Ratings credit analyst Jessica Wood.

We understand that the university has not received any additional state appropriations for fiscal 2017 beyond the stop-gap funding that was approved on the last day of fiscal 2016. The receipt of additional appropriations is contingent on the passage of a state budget or a stopgap funding bill. We further understand that should the state legislature fail to pass a budget via a simple majority vote by May 31, 2017, a supermajority vote will be required to pass a budget by fiscal year-end, making the likelihood of such passage more remote. In fiscal 2016, Illinois' public universities received only a fraction of historical operating appropriations (not including state on-behalf payments), which placed significant liquidity stress on these institutions.

WIU's lack of state funding for fiscal 2017 beyond what was approved on June 30, 2016, has also constrained the university's revenue base, as approximately 37% of the university's annual adjusted operating revenue was derived from state appropriations in fiscal 2016. We believe that the continued lack of state funding would further stress the university's liquidity and credit profile.

We currently rate the state of Illinois 'BBB' with a negative outlook. Our three-notch downgrade and CreditWatch negative placement of WIU's bonds reflect our view of WIU's recent operating deficits, pressured balance sheet metrics and reserves, and dependence on state appropriations to support operations. Specifically, the downgrade reflects the effects of the state of Illinois' ongoing severe budgetary challenges, as demonstrated by its nearly two-year-long budget impasse, on WIU's financial position. This has strained WIU's liquidity position and contributed to significant full-accrual operating deficits and substantially weakened available resources in the near term.

During our one-year outlook period, we expect the university's enrollment to continue to be pressured and its operations to be, at a minimum, positive on a cash basis and that it will maintain a manageable debt burden and available resource ratios consistent with the rating category. A removal of the ratings from CreditWatch and outlook revision to stable would be contingent on receipt of regular state operating appropriations for the remainder of fiscal 2017 and over the remainder of the outlook period, coupled with maintenance of WIU's enrollment, financial operations, and cash flows around fiscal 2015 and prior-year levels.

Certain terms used in this report, particularly certain adjectives used to express our view on rating relevant factors, have specific meanings ascribed to them in our criteria, and should therefore be read in conjunction with such criteria. Please see Ratings Criteria at www.standardandpoors.com for further information.

Complete ratings information is available to subscribers of RatingsDirect at www.globalcreditportal.com and atwww.spcapitaliq.com.
All ratings affected by this rating action can be found on the S&P Global Ratings' public website at www.standardandpoors.com. Use the Ratings search box located in the left column.

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