Moody’s affirms Idaho State University’s A1 issuer and revenue bond ratings; outlook stable

Thanks to the Budget Advisory Group’s continued commitment to work toward a balanced budget, we have reduced our structural budget deficit by nearly 50%, adhering to the timeline proposed to the Board of Education. Because of the budget optimization efforts across the University and enrollments that continue to climb, Moody’s Investor Services Ratings has most recently affirmed our A1 issuer and revenue bond rating status. They also confirmed our budgetary outlook, saying ISU’s outlook shows “lots of stability; and a strong and improving financial position.” Moody’s specifically highlighted the work of the budget optimization process in their report, and although we have more work to do, this demonstrates we are on the right track and our efforts are having a positive impact. Details from the announcement and rating methodologies are below.

Moody’s Ratings has affirmed Idaho State University’s (ISU) A1 issuer and revenue bond ratings. The university had approximately $42.8 million in debt outstanding at the end of fiscal 2023. The outlook is stable.

RATINGS RATIONALE
The affirmation of the A1 issuer rating is driven by Idaho State University’s good brand and strategic positioning as a regional public university with four campuses across southern Idaho.

ISU’s wealth and liquidity remains strong, with total cash and investments of $247 million and 153 monthly days cash on hand in fiscal 2023, providing for good coverage of debt and expenses and solid financial flexibility. The university’s enrollment has stabilized in recent years following a sustained period of declines, with a larger first year class in fall 2023 providing prospects for solid enrollment growth over the next two to three years. Operating results have fluctuated over the past three fiscal years, but EBIDA and operating margins will remain sound in fiscal 2024 and fiscal 2025 as the university continues to implement budget optimization measures to improve long-term operating performance. ISU maintains a diverse revenue mix, with approximately 40% of annual operating revenue coming from the State of Idaho (Aaa stable). The university’s leverage profile will remain manageable given its low direct debt burden and financial reserves that provide strong coverage of debt and pension and OPEB liabilities.

The affirmation of the A1 revenue bond rating reflects the university’s underlying credit characteristics and the broad nature of pledged revenue which provides strong coverage of outstanding annual debt service.

RATING OUTLOOK
The stable outlook reflects Moody’s expectations that ISU’s operating performance will remain solid over the next two fiscal years as it continues to implement expense reduction measures, with EBIDA margins around 10% and annual debt service coverage over 2x. It also incorporates expectations that the university’s wealth will continue to provide good coverage of expenses and total adjusted debt.

FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS
• Substantial increase in total wealth and liquidity beyond the fiscal 2023 level of $247 million that outpaces peer institutions
• Material growth in the overall operating scale of the university, including operating revenue, enrollment and research footprint
FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS
• Sustained deterioration of operating performance, with EBIDA margins below 8% and annual debt service coverage below 2x
• Prolonged period of declining enrollment and weakening net tuition revenue
• Material decline in operating appropriations from the State of Idaho

LEGAL SECURITY
The university’s outstanding bonds are secured by Pledged Revenues, which include net tuition and fees, auxiliary revenues, miscellaneous revenues and unrestricted investment income. The University has covenanted to establish and maintain Pledged Revenues greater than 1.1 times annual debt service. Fiscal 2023 Pledged Revenues of $116 million provide approximately 12.2 times annual debt service of $7 million.