Fitch Downgrades Illinois Institute of Technology, Illinois Revs to 'BBB'; Outlook Negative

NEW YORK--(Business Wire)--
Fitch Ratings assigns a 'BBB' rating to Illinois Institute of Technology's
(IIT), series 2009A revenue bonds issued through the Illinois Finance Authority
in the approximate amount of $25 million. The bonds are expected to be sold
through negotiation on or about July 7, 2009. Bond proceeds will be used to fund
various campus capital improvements. In addition, Fitch has downgraded its
rating on approximately $160 million of IIT's outstanding revenue bonds to 'BBB'
from 'A-'. Revenue bonds are a general obligation of IIT. The Rating Outlook is
Negative.

The rating downgrade is supported by IIT's history of steeply negative operating
performance, significantly reduced liquidity resulting from excess endowment
draws and reduced investment valuations, and high debt burden. The university
continues to have solid demand for its programs, although freshman applications
have slipped over the past two academic years. The Negative Outlook reflects the
challenges the university must meet as it works to restore fiscal balance and
rebuild financial flexibility by increasing student generated revenues and
decreasing its reliance on excess endowment draws.

IIT's operating performance has been increasingly negative over the past four
fiscal years, despite its use of excess endowment draws to close budget
deficits. In fiscal 2008, IIT's operating margin with total endowment payout
($16 million of base draw plus $22.8 million additional draw) was negative 8.3%,
an increase from negative 4.6% in fiscal 2007. IIT plans to reverse its
dependence upon excess endowment draws for operations by using declining amounts
of excess draws over the next three fiscal years and no additional draw in
fiscal 2012. Instead, the university's strategy to close its operating gap over
the same period will include increasing enrollments and tuition, decreasing its
tuition discounting, and cutting costs. IIT will need to meet these goals to
avoid additional rating action.

The lack of operating surpluses, together with investment losses and an
allocation to less liquid asset classes, have significantly eroded IIT's
financial cushion. Available funds (calculated as total cash and investments net
of permanently restricted net assets) totaled $129.6 million as of May 31, 2008.
When adjusted for the portfolio's less liquid alternative asset holdings, total
available funds equaled a reduced $72.1 million, and represented 29.4% of fiscal
2008 operating expenses and 33.9% of total proforma long-term debt. Based upon
estimated market losses of approximately 30% experienced from fiscal year end
May 31, 2008 through April 30, 2009, these adjusted available funds are
estimated to have declined to $51.1 million, representing a further reduced
20.9% of fiscal 2008 operating expenses and 24% of total outstanding long-term
debt. Although these levels remain adequate to support IIT's attainment of its
operational goals, the university will need to maintain and/or improve its
liquidity levels to avoid additional rating action.

IIT's total proforma long-term debt is approximately $212 million and includes
$10.5 million of outstanding lines of credit, and $561,000 of notes payable.
Also included is approximately $16.8 million of outstanding adjustable-rate
bonds issued on behalf of the Illinois Institute of Technology Research
Institute (IITRI). Although the bonds are non-recourse to IIT, IITRI is a
controlled affiliate of IIT and is located on its main campus. Proforma
long-term debt MADs totals approximately $17 million and would consume a high 8%
of fiscal 2008 revenues. Debt ratios are expected to remain stable as IIT has no
plans to issue additional debt.

IIT is a private, coeducational technical engineering institute founded through
the merger in 1940 between Armour Institute of Technology and the Lewis
Institute (both of which were founded in the 1890s). Full-time equivalent (FTE)
enrollment increased 5.5% to 7,095 students in fall 2008. Graduate students
represent over 50% of total enrollment. IIT has focused on increasing its
undergraduate population, exceeding its goal of 2,500 students by fall 2008.
Matriculating freshmen increased to 29.5% in fall 2008; however, freshman
applications have declined over the past two academic years. The declines are
attributed to a failed marketing strategy that has been replaced by university
officials. Going forward, Fitch expects continued moderate enrollment growth,
comparable to historical trends.

Fitch's rating definitions and the terms of use of such ratings are available on
the agency's public site, www.fitchratings.com. Published ratings, criteria and
methodologies are available from this site, at all times. Fitch's code of
conduct, confidentiality, conflicts of interest, affiliate firewall, compliance
and other relevant policies and procedures are also available from the 'Code of
Conduct' section of this site.

Fitch Ratings, New York
Mary Catherine Messner, CFA, FRM, 212-908-0738
Colin Walsh, 212-908-0767
or
Media Relations:
Cindy Stoller, 212-908-0526
Email: cindy.stoller@fitchratings.com

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