Illinois Finance Authority — Moody’s revises Illinois Institute of Technology, IL’s outlook to negative; affirms Baa3 issuer and revenue bond ratings

Rating Action: Moody’s revises Illinois Institute of Technology, IL’s outlook to negative; affirms Baa3 issuer and revenue bond ratingsGlobal Credit Research – 03 Mar 2022New York, March 03, 2022 — Moody’s Investors Service has affirmed Illinois Institute of Technology, IL’s outstanding Baa3 issuer and revenue bond ratings. The university had nearly $195 million in total debt outstanding as of May 31, 2021. The outlook has been revised to negative from stable.RATINGS RATIONALEThe revision of the outlook to negative reflects uncertainty in the university’s near-term operating performance, with potential weakening through fiscal 2022 and beyond. Federal relief funds and gift revenues bolstered performance in fiscal 2020 and 2021, but weaker than expected enrollment in fall 2022 due in part to continued effects of the pandemic and rising expenses point to the potential development of a more fundamental structural deficit. The university’s financial strategy includes some increasing risks and contributes to the negative outlook. This includes thin liquidity with relatively heavy use of lines of credit, turnover of financial management, financial forecasts that remain in development for the current fiscal year, and a debt structure with liquidity risk due to multiple financial covenants, which could result in acceleration if tripped.The Baa3 rating remains supported by Illinois Tech’s sound overall and growing wealth, good scale, and strategies to improve enrollment which have some prospects for success given the university’s fair brand and STEM focus. A healthy investment return in fiscal 2021 and recent donor support contributed to a 30% increase in total wealth since 2017. Proceeds from the sale of a broadband channel and monetization of the university’s utility system in fiscal 2022 provided a boost to liquidity in the current fiscal year, but near-term capital plans and thin operating performance will partially mitigate the ability to sustain growing reserves. Illinois Tech continues to implement its strategic enrollment plans, including increasing overall enrollment, especially in its domestic student population. While the university was able to recover some enrollment in fall 2021 that had been lost as a result of the pandemic and continues to benefit from its STEM academic program focus and urban location in Chicago, the student market remains highly competitive.RATING OUTLOOKThe negative outlook incorporates the potential that Illinois Tech’s fiscal 2022 operating performance could weaken and persist in the near-term should the university fail to achieve and sustain enrollment and stronger net tuition revenue growth. The outlook also reflects the likelihood that liquidity will remain relatively low absent stabilization of operating performance.FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS- Significant and sustained improvement in operating performance, reflecting stronger student generated revenues and successful expense controls- Material and lasting growth in the university’s total wealth and unrestricted liquidityFACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS- Failure to maintain covenant compliance in fiscal 2022 or to obtain a waiver in the event a missed covenant- Inability to improve operating performance beginning in fiscal 2023 and gradually reducing reliance on an operating line of credit- Sustained reductions in available liquidity- Failure to achieve sustained enrollment or net tuition revenue growthLEGAL SECURITYIllinois Tech’s outstanding bonds are unsecured general obligations of the university.PROFILEIllinois Institute of Technology (Illinois Tech) is a private, not-for-profit university located in Chicago, IL. In fiscal 2021, Illinois Tech generated operating revenue of approximately $274 million and enrolled 5,885 full-time equivalent (FTE) students as of fall 2021.METHODOLOGYThe principal methodology used in these ratings was Higher Education Methodology published in August 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1257002. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.REGULATORY DISCLOSURESFor further specification of Moody’s key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody’s Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider’s credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. 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