Fitch Rts Southern Illinois Univ Hsg & Auxiliary Facils Bds `A+'

Business Wire, Nov 28, 2001

Business Editors

NEW YORK--(BUSINESS WIRE)--Nov. 28, 2001

The Board of Trustees of Southern Illinois University's (SIU) $35.2 million housing and auxiliary facilities system revenue bonds, series 2001A are rated 'A+' by Fitch. The bonds are scheduled to sell via negotiation by ABN AMRO on Dec. 11. The bonds are expected to be insured and rated 'AAA' at closing. In addition, Fitch has upgraded SIU's outstanding parity housing and auxiliary facilities system bonds to 'A+' from 'A', affecting $91.7 million in debt. The Rating Outlook is Stable. The bonds are secured by net revenues of the housing and auxiliary facilities system and pledged tuition up to an amount equal to maximum annual debt service subject to prior payment of operations and maintenance of the housing and auxiliary facilities system. Net revenues of the housing and auxiliary system have been sufficient to meet debt service requirements since 1984, and the university does not expect to utilize pledged tuition revenues for future debt service needs.

The upgrade to 'A+' reflects improved financial performance as well as implementation of positive management policies and practices. In addition, legislative changes by the state (which is rated 'AA+' by Fitch), such as the change from line item appropriation to lump sum appropriation enhances SIU's financial flexibility. Borrowing has moderated in recent years and although the long-term capital plan has not been finalized, future debt issuance is expected to remain manageable.

SIU is the second largest university in the state, offering comprehensive undergraduate, graduate, and professional programs to about 34,000 students. SIU maintains campuses in Carbondale (the largest campus with about 22,000 students), Edwardsville (with about 12,000 students), as well as a School of Medicine in Springfield, a Dental School in Alton, the Nakajo Campus in Japan, and the East St. Louis Center. SIU also provides programs on numerous military installations throughout the U.S., all of which are fully self-supporting. Overall, enrollment has recorded a modest 3.1% growth since 1996. Projections point to flat enrollment at the Carbondale campus through 2006, while the Edwardsville campus (near St. Louis) is anticipated to record slight growth. Approximately 80% of the students are from Illinois and the state is projected to experience a healthy 13% increase in the number of high school graduates through 2011, contributing to future stability. Tuition and fees are relatively low in comparison to other doctoral and research institutions in Illinois, providing additional flexibility in the event state appropriations are reduced.

Financial performance continues to improve from prior year's performance primarily due to a new budgeting and planning process, continued strong support from the state for operating and capital needs, as well as legislative changes enacted by the state. Implemented in 1997, the new budgeting and planning process places more emphasis on establishing priorities, setting reserves for deferred maintenance, and providing greater accountability and departmental autonomy. The state's support for education has been strong, with appropriations climbing faster than the rate inflation. For fiscal 2001, state support grew by 6.4%. While the state, like many others, is experiencing slower than anticipated revenue collections, SIU appears well positioned to handle the currently proposed cuts in state appropriations, if they should materialize. At this time, the state has asked SIU to hold 1%; SIU, as a matter of budget policy, holds 2% in reserve. Favorable legislative changes enabled the university to keep its interest earnings and changed funding from line-item appropriations to lump sum appropriation, enhancing financial flexibility.

Draft fiscal 2001 results, which are essentially final, point to the elimination of a long-standing Unrestricted Current Fund (UCF) deficit. A $5.4 million surplus is now expected. It should be noted that SIU's balance sheet is negatively impacted by a large accrued compensated absences liability ($48.2 million in 2001) in the UCF. However, the vast majority of this liability is long-term and will be primarily funded by the state. Nevertheless, although improved, SIU's liquidity position remains somewhat weak.

Typical of public institutions, SIU is reliant on state support; in the UCF, state appropriations in 2001 before non-mandatory transfers represented about 56% of operating revenues while tuition represented about 21%. In an effort to improve its competitive position, a non-profit corporation was created for SIU's physician practice plan. As a result, beginning in fiscal 1998, these revenues have been recorded as non-mandatory transfers. Adjusting for these revenues, SIU's unrestricted operating ratio improves from a -2.3% (without accounting for physician practice revenues in operating revenues) to a more acceptable 2% (including physician practice revenues).

Fitch views other recently imposed management actions as beneficial to SIU's long-term financial stability and competitive position. Such actions include the completion of a comprehensive assessment of deferred maintenance, the near-term completion of a long-range capital plan, and the planned initiation of a major capital campaign. Deferred maintenance needs appear manageable at $159 million, with SIU spending over $100 million in this area over the last ten years and annually dedicating a portion of its budget to these needs. Although SIU's debt load nearly doubled from 1997 to 2000, borrowing has since moderated with a small $4 million to $5 million-debt issuance planned over the near-term. While the long-term capital plan has not been finalized, future borrowings are expected to remain manageable. Total university endowment is a relatively modest $58 million, the bulk of which represents the SIU- Carbondale Foundation's share. Historically, the SIU Foundations have served as the investment arm of the university. However, increased gift giving is one of the major priorities set by the relatively new president and for the first time, a professional fundraiser for the Carbondale Foundation has been hired. The silent phase of a major fundraising campaign is expected to begin in 2002. In addition, the president has identified other priorities for the university, including more scholarships and improving SIU's image.