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January 31, 2014

University at risk of lowered credit rating

Two major rating agencies lowered the University of Chicago’s outlook on debt to negative, placing the institution at risk of a credit downgrade.

Standard & Poor’s rating service put UChicago’s $2.6 billion rated debt on watch yesterday, mirroring the action of Moody’s Investor Service on January 28. A report by Moody’s cited declining operating performance, forthcoming new debt, and the cost of rising debt.

The University’s current credit rating of Aa1, Moody’s second highest grade, is lower than that of Northwestern University.

Big-ticket construction projects over the next five years­—including the expansion of the Laboratory Schools, housing for the molecular engineering program, and the construction of the Becker Friedman Institute for Research in Economics—will rack up $1.46 billion in expansion costs for the University, according to Crain’s Chicago Business.

Long-term debt is projected to grow by 21 percent to $3.37 billion by the end of fiscal year 2018, according a five-year financial plan for the University presented on June 6, obtained by Crain’s. 

In a University press release, the financial report was described as the latest scenario projection as of June 2013, and stated that the plans were not binding.

Moody’s Aa1 rating of the University has stayed constant since at least 2001. The shift of the outlook of the University of Chicago Medical Center (UCMC) to negative in November of last year was listed as a top concern, given that the hospital’s “surpluses have funded the University’s own deficits” in the past.

S&P, which has not revised its outlook for the UCMC, flagged the University’s long-term debt as at risk of losing its AA rating, the second-highest score issued by the agency. Another ratings agency, Fitch Ratings, affirmed its stable outlook.

Despite the negative outlook, the University maintains that its financial decisions are sound.

“The University’s planning balances programmatic opportunities with financial risks and resources. It is more than a financial plan; it is a long-term strategy for the continued excellence of the University,” Tim George (S.B. '74, M.B.A. '75), Chair of the Board of Trustees Financial Planning Committee, said in an e-mail.

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