Governors State University, IL Debt Rating Lowered To #BB# On State Budget U On Watch Neg

Stocks and Financial Services Press Releases Friday April 21, 2017 09:12
CHICAGO--21 Apr--S&P Global Ratings

CHICAGO (S&P Global Ratings) April 20, 2017--S&P Global Ratings lowered its underlying rating one notch to 'BB' from 'BB+' on Governors State University Board of Trustees (GSU), Ill.'s series 2007 and 2012 university facilities system (UFS) revenue bonds and series 2008 and 2009 certificates of participation (COPs).

We also placed the rating on CreditWatch with negative implications. "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 stop-gap 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.

GSU'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 38% of the university's annual adjusted operating revenue was derived from state appropriations (including on-behalf payments) 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 one-notch downgrade of and CreditWatch placement of GSU's bonds reflect our view of GSU'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 GSU's financial position.
This has strained GSU's liquidity position and contributes 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 rating 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 GSU'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 for further information.

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

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