The Rating Outlook is Stable.
Revenue bonds are a general obligation of IIT. Additionally, IIT's series 2009 revenue bonds are secured by a cash-funded debt service reserve.
KEY RATING DRIVERS
OPERATING IMPROVEMENT MAINTAINED: In fiscal 2013, IIT continued its recent trend of recording positive operating results, as the institute had a 0.3% GAAP-based operating margin (including endowment distribution). While this is below the fiscal 2012 margin of positive 1.6%, it is IIT's second consecutive gain following several years of operating deficits.
MANAGEABLE DEBT BURDEN: Improved operations have enabled IIT to cover pro forma maximum annual debt service (MADS) from net operating income by over 1.5x for each of the past three fiscal years; 1.6x in fiscal 2013. Moreover, its debt burden remains manageable, with MADS consuming a moderate 6.1% of fiscal 2013 unrestricted operating revenues.
WEAK, BUT IMPROVING FINANCIAL CUSHION: IIT's balance sheet cushion remains weak, characterized by limited balance sheet resources relative to operations and debt. However, growth in available funds, driven in part by favorable investment returns and ongoing, planned reductions in its annual endowment draw resulted in improved liquidity metrics for fiscal 2013.
STEADY STUDENT DEMAND: The institute has a solid track record of generating stable student demand over the past several years, with growth in undergraduate enrollment offsetting recent softening in graduate program demand, notably law; which Fitch notes is consistent with national trends.
SUSTAINED OPERATING IMPROVEMENT: Sustained improvement in IIT's operating performance driven by recently favorable undergraduate and graduate enrollment trends could yield upward rating pressure.
BALANCE SHEET CUSHION: Despite a still weak balance sheet cushion, steady improvement in liquidity metrics, coupled with annual breakeven to positive operating results, could provide further rating momentum.
IIT is a private, technical engineering institute established in 1940. Located in
Operating Improvement Maintained
IIT maintained its recent operating improvement in fiscal 2013, posting a positive 0.3% operating margin. While this is just above breakeven and below the prior year's level, it is IIT's second consecutive year with an operating surplus following several years of deficits. Operating stability continued to be driven by management's multi-year financial turnaround plan that has focused on various cost containment and revenue enhancement initiatives. Similar to many other private institutions, IIT's largest revenue source is student-generated revenue (57.3% of fiscal 2013 operating revenues), although it also benefits from grant and contract revenues which provide a modest level of revenue diversity.
Operating losses from prior years led IIT to rely more heavily on its endowment and to draw in excess of its stated endowment payout policy. However, the expense controls and revenue enhancement initiatives implemented over the past few fiscal years enabled IIT to annually reduce its endowment payout, with no excess draw needed since fiscal 2011; a factor viewed favorably by Fitch. Its total endowment draw declined to
Management's continued focus on conservative budgeting and financial planning are anticipated to yield another breakeven to slightly positive result for fiscal 2014. Based on unaudited interim results as of
While IIT's participation in the
Manageable Debt Burden
IIT's debt burden remains manageable, with MADS of approximately
Weak, But Improving Financial Cushion
One of Fitch's key credit concerns remains IIT's weak balance sheet cushion. However, despite fluctuating over the past few years, available funds (defined as cash and investments not permanently restricted) improved to
IIT's ongoing fundraising campaign raised approximately
Additional information is available at 'www.fitchratings.com'.
--'U.S. College and University Rating Criteria' (
--'Fitch Affirms Illinois Institute of Technology Rev Bonds at 'BB-'; Outlook Stable' (
Source: Fitch Ratings
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