Because of sustained financial success, IU's credit rating has remained at AAA and Aaa levels, as reported by Standard & Poor’s Global and Moody’s Investors Service, respectively.
Credit ratings determine how likely an organization is to default on debt.
IU treasurer Don Lukes said when it’s boiled down to costs for the University, a strong rating lowers the cost of issuing bonds because higher ratings mean lower interest rates. Investors are more likely to purchase IU’s bonds because they are considered extremely sound.
S&P Global and Moody’s grade institutions, corporations and countries based on quantitative and qualitative data, and while IU fits into the category of not-for-profit universities and colleges, Lukes said the general concept behind the grading is similar for most institutions. However, S&P downgraded the U.S. treasury bond rating to AA in 2011 after the country’s financial crisis.
“We have a very strong balance sheet, so we’re able to maintain sufficient cash and liquidity,” Lukes said. “If there were to be a financial crisis like there was in 2008, we can weather the storm longer than universities that would have a lower-rated credit or a balance sheet that’s not as strong.”
S&P referenced continuing enrollment and a geographically diverse student population in its assessment, and Moody’s praised IU’s research activities and favorable cash flow, according to an IU press release.
Lukes said actions that could negatively influence the school’s credit rating include administrative scandals or a significant decrease in operating performance. Even with the current in-state tuition freeze and other initiatives to help make tuition more affordable, Lukes said the University continues to generate millions of dollars every year.
When institutions issue bonds, they normally have their credit rating reaffirmed. IU recently issued enough bonds to generate $83 million in funding. Fifty-three million dollars will go toward the construction of the Excellence Academy in the south end zone of Memorial Stadium, while the other $30 million is for recently approved renovations to the Eskenazi Museum of Art.
Lukes said the bonds were the reason IU’s credit was reviewed by the two agencies. According to the release, IU is one of seven public universities, three of which are in the Big Ten Conference, to receive the highest ratings from both S&P and Moody’s.
Moody’s has given IU its highest rating for almost seven years, while the University has enjoyed the current S&P rating for just more than a year.
IU wouldn’t be able to continue construction on all of its campuses the way it does without such a strong financial situation, Lukes said.
“We’re still generating enough income and cash flow to continue to reinvest in the University,” Lukes said.
