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Positive credit ratings lower project financing costs

Hovey Hall

Hovey Hall

Illinois State University recently received positive news about its credit worthiness.

Moody’s Investors Service reaffirmed its rating of A3 for Illinois State, while Standard & Poor’s reaffirmed its A+ rating. The University now holds the second highest credit rating among public universities in Illinois.

“In addition to academic success, Illinois State is also distinguishing itself for its financial stability,” said Interim Vice President for Finance and Planning Greg Alt. “This is especially important at a time when both the state and some Illinois public universities are experiencing rating downgrades.”

One of the core guiding values in the Division of Finance and Planning is to be fiscally responsible and utilize all resources judiciously. The University is noted positively for its consistent positive operating results and prudent use of debt. The division believes the positive ratings by the outside agencies are a reflection of that stewardship.

Credit ratings are an objective tool used by investors and lenders to make decisions about an institution’s credit worthiness and its ability to make timely payments. They directly impact the cost to borrow funds to finance capital projects.

The benefits of Illinois State’s positive credit ratings were recently demonstrated in the very successful 2014 Certificates of Participation (COPs) debt issue sold competitively in the financial market this spring to finance important academic facility and technology improvements.

After securing approval from the Board of Trustees and the state’s Commission on Government Forecasting and Accountability, the University on April 29 offered $25 million of debt securities for sale in the open market. Illinois State typically utilizes a competitive sale process to obtain lower rates on its debt by taking full benefit of market competition, which ultimately lowers project costs.

Seven broker dealers and three commercial banks submitted bids to purchase the COPs. JPMorgan Chase was successful in acquiring the shorter term Series 2014 A-1 of $9.2 million with a True Interest Cost of 2.29 percent. PNC Capital Markets was the successful bidder for the longer term Series 2014 A-2 of $15.8 million with a True Interest Cost of 4.23 percent.

“The combined blended rate for both series is 3.87 percent, which is very competitive for a 20-year municipal issue and is affirmation of the credit market’s confidence in the financial stability of ISU,” said Alt. “It also demonstrates the added benefit of our use of a competitive sale process.”

 

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