Rating Action: Moody's upgrades Northeastern Illinois University's (IL) issuer rating to Ba2 and certificates of participation rating to Ba3; outlook is stableGlobal Credit Research - 08 Dec 2021New York, December 08, 2021 -- Moody's Investors Service has upgraded Northeastern Illinois University's issuer rating to Ba2 from B2 and its Certificates of Participation rating to Ba3 from B3. Total outstanding direct debt at the university in fiscal 2020 was approximately $49 million. The outlook is stable.RATINGS RATIONALEThe upgrade of Northeastern Illinois University's (NEIU) issuer rating to Ba2 and certificates of participation rating to Ba3 reflects notable strengthening of its balance sheet, in part driven by significant federal pandemic relief combined with ongoing good expense management. Total cash and investments rose nearly 30% in fiscal 2021, on a preliminary basis, with monthly liquidity also improving materially. Both have improved significantly from the lows hit at the end of fiscal 2017 because of the state's budget impasse, when liquidity dipped to under $15 million and provided under 30 days cash on hand. In addition, improved prospects for steady and on-time operating support from the State of Illinois (Baa2 stable) over the next several years are credit positive.Nonetheless, NEIU's rating remains constrained by its heavy reliance on the State of Illinois for operating support and a highly challenged brand and strategic positioning. The university receives over 50% of its overall operating revenue from the state, which faces significant long-term fiscal challenges, making NEIU vulnerable to future funding volatility or reduced appropriations. And, while operating performance has strengthened, recent improvement is bolstered by non-recurring federal pandemic support with future performance reliant primarily on the ability to generate net tuition revenue, increased state support, and cost containment efforts. Brand and strategic positioning challenges are evidenced by sustained and persistent full-time equivalent enrollment losses, with enrollment declining by more than 40% over the past decade. Additionally, the university's capital spending has been below depreciation for multiple years resulting in an increasing age of plant, which could further weaken the university's brand and strategic positioning over the long run. Other credit factors considered include relatively low-direct debt, sound annual debt service coverage, and a liquid investment portfolio.The certificates of participation are rated one notch below the issuer level rating due to the contingent nature of the obligation.RATING OUTLOOKThe stable outlook reflects Moody's expectations of continued on-time payments from the State of Illinois, resulting in steady EBIDA margins over the outlook period. It also reflects expectations that management will continue managing expenses as the university faces continued enrollment pressures.FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS- Improvements in the state's fiscal condition over multiple years, resulting in improved state credit quality and an improved operating environment for NEIU- Significant improvement in strategic position, reflected in enrollment and net tuition revenue growth and less reliance on the state to fund operations- Continued growth in balance sheet reservesFACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS- Weakening of the State of Illinois' fiscal condition resulting in uncertainty surrounding direct operating support and on-behalf payments- Inability to curb enrollment losses- Material weakening of liquidity or inability to maintain steady operating performance and sound debt service coverageLEGAL SECURITYThe 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 are payable from NEIU's broad budget and the obligation to pay can be terminated in the event that it does not receive sufficient state appropriations and the board determines the university does not have other legally available funds.PROFILENEIU is a regional comprehensive public university with multiple campuses in the Chicago metropolitan area. It is designated by the US Department of Education as a Hispanic-Serving Institution. Fall 2020 full-time equivalent student enrollment was 4,672 students and fiscal 2020 operating revenue was approximately $170 million, as calculated by Moody's.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. 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