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Moody's affirms Governors State University, IL's UFS bonds and COPs Baa3; outlook negative.

New York: Summary Rating Rationale

Moody's Investors Service has affirmed the Baa3 rating on Governors State University, IL's (GSU) University Facilities System Bonds (UFS) and Certificates of Participation (COPs). The outlook is negative.

The affirmation reflects sufficient liquidity to address near-term challenges posed by the state's ongoing budget impasse. It also takes into account a more flexible staffing model than many peers which enables it to more quickly react to material financial stress. The Baa3 rating incorporates that GSU is achieving enrollment growth, unlike many regional peers, in part because it recently started offering underclassmen courses in fall 2014. Relatively weak operating cash flow, a demographically challenged core market, and transition risk are offsetting credit factors that also contribute to the negative outlook.

Rating Outlook

The negative outlook largely reflects the ongoing challenges associated with the State of Illinois (Baa1 negative), and its protracted budget impasse. The outlook captures the fact that an extended period of time without any state appropriations beyond the end of the fiscal year could stress the university's ability to sustainably cover all obligations. As the university currently has thin cash flow due in part to transition costs, the negative outlook also reflects the university's challenges of reducing expenses while continuing to invest in expanded programming.

Factors that Could Lead to an Upgrade

Significant and sustained growth in liquidity

Reduced reliance on state support combined with stronger cash flow

Factors that Could Lead to a Downgrade

Material decline in state appropriations, including on-behalf payments, or timing delays of disbursements that harms operating performance or the ability to pay debt service

Further deterioration of the state's credit quality

Weakening of already thin cash flow

Legal Security

The UFS bonds are secured by the net revenues of the University Facilities System, as well as mandatory student fees and tuition revenues, subject to the prior payment of operating and maintenance expenses of the University Facilities System, but only to the extent necessary. There is a rate covenant to provide 2.0 times coverage of maximum annual debt service from pledged revenue, as well an additional bonds test. There is no debt service reserve fund, and accumulated surpluses from the UFS system may be used to support any lawful purpose. In fiscal 2015, MADS coverage from total funds available for debt service was over 16 times.

The Certificates of Participation (COPs) are payable from both state-appropriated funds and from budgeted legally available funds of the university from sources other than state appropriations, including tuition and fees. While the COPs typically benefit from the breadth of revenue available to pay debt service, the lack of state appropriations and tightening operating budget weakens this structure. The COP's are payable from the university's broad budget, and the obligation to pay can only be terminated in the event that the university does not receive sufficient state appropriations and does not have other legally available funds.

Use of Proceeds

Not applicable

Obligor Profile

GSU is a regional comprehensive public university located 40 minutes south of Chicago. As a key provider of education for first-generation college students, the university implements an extensive and successful academic program geared towards the specific needs of this population. It also maintains low tuition rates and tuition increases relative to peers due to an emphasis on affordability in the service of its key student market.


The principal methodology used in this rating was Global Higher Education published in November 2015.
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Publication:Daily the Pak Banker (Lahore, Pakistan)
Date:Mar 11, 2016
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