The NIU campus. The university’s latest debt will finance energy efficiency projects affecting roughly half of campus buildings.
Northern Illinois University
Northern Illinois University will issue $62 million of Series 2024 certificates of participation to finance energy-saving projects affecting roughly 50 buildings, or half of all campus infrastructure.
It does so after Moody’s Rankings on Oct. 28 revised the general public university’s outlook to negative from stable and rated the Series 2024 COPs below investment-grade at Ba1.
The lead manager on the deal is Piper Sandler. Co-managers are Backstrom, McCarley, Berry & Co. and Estrada Hinojosa.
The university had $257 million of debt outstanding as of June 30, 2023, and Moody’s said NIU’s plan to tackle more debt amid weakening operating performance “will further strain the university’s leverage profile.”
“The university currently has minimal cushion to soak up the brand new debt service if challenges arise,” Moody’s said in its rating motion, noting that weaker-than-expected financial leads to fiscal 2023 were followed by significantly weakened operating performance in fiscal 2024.
“We assess historical operating results against budgets, against projections and that form of thing,” said Michael Osborn, vp and senior credit officer for public finance at Moody’s. “We expected barely higher results than what were reported … and that resulted in an elevated use of their money.”
Osborn said compensation accounted for nearly all of the expense pressures facing the university and was the first driver of expense growth.
“And what you haven’t got is offsetting revenue growth — the expansion in student charges, the expansion in state appropriations,” he said.
But Moody’s noted the state — which it rates A3 with a positive outlook — has a strengthening credit profile, and the university’s expanded enrollment and financial aid opportunities have led to more enrollment stability.
“There’s some traction on the enrollment side,” said Osborn, pointing to full-time equivalent stability, greater credit-hour production and prospects for revenue growth.
NIU Chief Financial Officer George Middlemist stressed the outlook revision from Moody’s wasn’t based on NIU’s enrollment trends or the structure of the project itself.
“It was really based on concern about our reduction over time in liquidity,” he said. “We share this concern. We have been taking pretty significant steps. … We’re within the strategy of attending to a balanced budget and expect that [process] to proceed.”
The university’s projected deficit for fiscal 2025 is half of the previous yr’s, he said, with the actual deficit in 2024 at just over $30 million.
“We plan on having a balanced budget by 2026, which is able to allow us to accumulate our money surpluses,” he said, adding the university has a “real robust” strategic enrollment plan and is leveraging scholarships strategically whilst it right-sizes its expenses — potentially shrinking its footprint through shared offices, for instance.
“We did have a number of conversations with Moody’s and in addition with the bond insurer, Construct America Mutual, and BAM did find the plan to be credible, they were willing to insure the bonds,” Middlemist said. The COPs will carry BAM’s GreenStar designation.
The debt was essential to handle the university’s aging, energy inefficient infrastructure, he said.
NIU identified 50 buildings that would stand to shrink their carbon footprints, and the university “targeted the buildings that will have probably the most impact, each on conservation and energy savings,” Middlemist said. “The savings must be equal to or greater than the debt payments.”
The college can track the energy savings and compare them to projections, he added. “The [energy] contractor has guaranteed those savings.”
Moody’s said the guaranteed savings contract and other anticipated savings should offset debt service.
Osborn noted, within the near term, Moody’s will keep watch over NIU’s performance.
“We shall be in search of strengthening of operating performance, fiscal alignment,” he said. “They’ve a pair years before the energy project is placed on line, so there’s time to make improvements where they will, whether that is on the revenue side or the expense side.”
Osborn clarified that short-term debt service should not be a difficulty because the interest is being capitalized, so it won’t develop into a cash-flow item for one more couple of years.
Under Gov. JB Pritzker, the state has been supportive of upper education funding in the previous couple of years, Osborn said. And Middlemist said the state legislature is currently considering a funding bill that will change the formula for higher education funding.
“NIU would profit from that change,” he said.
The university also just received the most important donation in its history, a $40 million gift from the Baustert Family Foundation for a health technology center, he noted.
“We’re navigating similar waters to the remainder of upper education,” Middlemist said. “We’ve latest fiscal realities. … There are a number of things that we are able to do as a society to assist advance lives, and better education is a component of the toolkit.”