Fitch Ratings, a leading provider of credit ratings, commentary, and research for global capital markets, assigned an “AA+” rating to a combined $575 million of the University of Chicago’s 2021 fixed rate revenue bonds in a report issued on February 18th. Fitch’s “AA+” rating indicates strong financial credibility but is not as strong as its “AAA” rating, which indicates the lowest possibility of default.
UChicago’s ratings outlook remained “negative,” indicating that the school’s credit rating could be downgraded in the future. Fitch Ratings downgraded UChicago’s ratings outlook to “negative” from “stable” in August.
Fitch Rating’s pessimism is chiefly the result of the coronavirus pandemic’s destabilizing effect on higher education. According to the agency, “the ongoing coronavirus pandemic and related government-led containment measures create an uncertain environment for the U.S. Public Finance higher education sector.”
This economic uncertainty couples with UChicago’s unusually high debt load to place the school’s finances in a precarious position, per Fitch. “Given UChicago’s comparatively thin leverage and capital-related ratios (for the rating category), if revenue and/or expense pressures mount a downgrade could be warranted. UChicago has little capacity for additional debt at the current rating level,” Fitch Ratings wrote.
Despite this, Fitch Ratings noted that UChicago has navigated the challenges of COVID-19 deftly. “The university’s operating prospects have stabilized in recent months as it has taken steps to manage expenses through the pandemic, and fall 2020 enrollment remained very strong and in-line with prior years,” the report says. Fitch Ratings also offered praise for the University of Chicago’s selectivity and reputation for academic excellence, factors considered to be indicators of stable revenue growth.
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