NIU’s credit rating falls

By Jessi Haish

NIU’s downgraded credit score may not greatly affect its future plans.

On Tuesday, Moody’s Investors Service announced that ratings have been downgraded for four Illinois universities, including NIU.

Moody’s is “an essential component of the global capital markets, providing credit ratings, research, tools and analysis that contribute to transparent and integrated financial markets,” according to its website.

Lei Zhou, assistant professor of finance, said in the United States, when bonds are issued, most times the recipient gets a credit score, which is issued by a facility like Moody’s.

All universities that were downgraded this week are schools that rely heavily on state funds in order to operate.

State Treasurer Dan Rutherford said when there is a downgrade to a credit rating, it affects the availability for brick and mortar projects.

Rutherford said if Northern gets into the bond market, bonds would likely cost the school more interest. The effects of this downgrade are going to “splash back” on all schools affected, Rutherford said. Other schools that were downgraded were Governors State University, Northeastern Illinois University and Eastern Illinois University.

However, this is not something NIU could have avoided.

“This is not Northern’s direct issue,” Rutherford said. “Northern is doing everything right.”

Rutherford believes the problem lies elsewhere.

“I think Illinois needs to get its act together financially,” Rutherford said. “This will help Northern.”

This downgrade came after Moody’s reviewed all public universities for possible downgrade in December. The universities were put on review due to “significant dependence on the state for operating funds and fringe benefits, as well as extensive appropriation payment delays in a challenging budget environment that continues to pressure Illinois’ public universities cash flow and liquidity,” according to a statement released by Rutherford’s office.

Zhou agrees with Rutherford and said this situation is not unique to NIU.

“It’s more the state of Illinois than Northern,” Zhou said. “The state owes Northern a lot of money.”

Zhou said if the state cannot solve financial problems, the university will be open to trouble.

However, Zhou believes NIU still has a decent rating. Aaa is considered the highest rating. NIU’s rating was dropped to A3 following the downgrade. The 3 indicates the ranking is in the lower end of the A scale. According to Moody’s, this is considered upper-medium grade and is subject to low credit risk.

Therefore, Zhou doesn’t foresee a problem for the university just yet.

“I don’t think there is any immediate danger,” Zhou said. “But it will be more obvious next time when bonds are issued in the future.”