Fitch Ratings has affirmed the 'BB' rating on the following outstanding Illinois Finance Authority (the authority) revenue bonds issued on behalf of Illinois Institute of Technology (IIT):

--$153,660,000 series 2006A bonds;

--$27,915,000 series 2009A bonds.

The Rating Outlook is Stable.

SECURITY

A note secures IIT's obligations under a loan agreement with the authority. The university's obligation pursuant to the note is a general obligation. The authority issued the bonds and loaned the proceeds to IIT.

The authority pledges and assigns its interest and rights in the IIT loan agreement and note to the trustee. IIT makes payments directly to the trustee in an amount sufficient for debt service.

The series 2009A bonds are further secured by a cash-funded debt service reserve fund.

KEY RATING DRIVERS

STABLE FINANCIAL POSITION: Operations have gradually improved and stabilized over the last few years. Operating margins were breakeven in fiscal 2015, and slightly negative in fiscal 2014, after two years of more favorable results. However, continued tuition revenue growth and a lessening reliance on endowment draws are indicative of a strengthening financial position.

IMPROVING FINANCIAL CUSHION: Improved operations and favorable investment returns have benefitted IIT's available funds ratios. Both ratios, while still weak and slightly lower than fiscal 2014 are much improved since fiscal 2012 and compare favorably to similarly-rated institutions.

MIXED STUDENT DEMAND: Overall stable enrollment is composed of healthy undergraduate growth and declining graduate trends, particularly law, which Fitch notes is consistent with national trends. Freshman retention is strong.

MANAGEABLE DEBT BURDEN: The university's maximum annual debt service (MADS) burden is manageable with MADS consuming a moderate amount of unrestricted operating revenues. Stronger financial operations have enabled IIT to produce sufficient pro forma MADS coverage which should continue given no additional debt plans.

RATING SENSITIVITIES

SUSTAINED OPERATING IMPROVEMENT: Sustained improvement in the Illinois Institute of Technology's operating performance, evidenced by positive operating margins driven by enrollment growth, and improvement in liquidity measures could lead to positive rating action.

STRUCTURAL IMBALANCE: A trend of negative operating margins, or a return to outsized reliance on endowment fund draws, could pressure the rating.

CREDIT PROFILE

IIT is a private not-for-profit technology-focused research university offering undergraduate and graduate degrees in engineering science, architecture, business, design, human sciences, applied technology, and law. Established in 1940, the institute operates five campuses in the Chicago metropolitan area with its main campus located four miles south of downtown Chicago.

STRENGTHENED FINANCIAL POSITION

IIT's operating position has improved. Operating margins have averaged breakeven since fiscal 2012, including a slight negative turn in fiscal 2014 to -1.5%, returning to breakeven in fiscal 2015. This follows six consecutive years of negative margins from fiscal 2006-2011. Moreover, excess endowment fund draws above its stated policy averaging more than $15 million annually during the prior period were more than one-third higher than the most recent three-year average. In effect, IIT has produced more stable operating results since fiscal 2012 while returning to its customary 5% endowment fund spending policy.

Management's multi-year financial turnaround plan focusing on various revenue enhancement and cost containment initiatives drives recent operating stability. Average annual operating revenue growth (2.9%) has outpaced operating expenses (2.3%) since fiscal 2011. Similar to many other private institutions, IIT's largest revenue source is student-generated revenue (61.5% of fiscal 2015 operating revenues), although grant and contract revenues (19.4% of fiscal 2015 operating revenues) provide significantly more revenue diversity than comparably-rated institutions.

Based on interim results through November 2015, management projects fiscal 2016 results will be similar to or slightly better than those in fiscal 2015. Consistently positive operating results would underscore the university's improved financial position.

IMPROVING FINANCIAL CUSHION

Available funds, defined by Fitch as cash and investments not permanently restricted, provide IIT with a modest financial cushion. For fiscal 2015, the ratios of available funds to unrestricted operating expenses and long-term debt were 23.3% and 31.6%, respectively, a slight decline from fiscal 2014 but a significant improvement from 6.2% and 7.1% in fiscal 2012. Of note, IIT does not budget to cover depreciation and any significant capital needs could cause greater year-to-year volatility in available funds ratios, to the extent the university cash funds related projects.

IIT's $250 million fundraising campaign is on target, according to management. The university has raised approximately $227 million of the goal, approximately two-thirds of which has been collected. A portion of campaign proceeds are expected to augment IIT's endowment, as well as fund certain capital projects.

OVERALL FLAT ENROLLMENT

Flat overall enrollment trends since fiscal 2011 potentially limit the rate of improvement in IIT's operating margin. Total enrollment increased by less than 1% during the period, totaling 7,337 for fall 2015. More broad, steady enrollment gains could ultimately contribute to stronger operating margins.

Healthy undergraduate growth totaling 19.4% since fiscal 2011 to 3,107 offsets negative overall graduate enrollment (-9.4%), largely driven by a declining number of law school students that is consistent with national trends. IIT's law students represent approximately 9.6% of total enrollment in fiscal 2015, down from 14.2% in fiscal 2011.

Incoming student admissions examination scores compare favorably with state and national averages. Average ACT scores (28) are seven points above the national average. Additionally, freshman retention has averaged 92% since fiscal 2011.

MANAGEABLE DEBT BURDEN

IIT's direct debt burden remains manageable. MADS of approximately $16.2 million (fiscal 2024) consumes a moderate 5.9% of fiscal 2015 unrestricted operating revenues, down from 6.4% in fiscal 2011 and 6.1% in fiscal 2014. Annual debt service and MADS coverage ratios improved slightly in fiscal 2015 to 1.5x (1.2x in fiscal 2014) and 1.4x (1.3x in fiscal 2014), respectively.

IIT's research affiliate, IITRI, has a $9.4 million private placement with a local bank. The obligation is non-recourse to the university. However, the debt is reported in IIT's consolidated audit and included in Fitch's ratios.

An off-balance sheet student housing obligation is an additional consideration in Fitch's analysis. Because IIT commits to preserving sufficient project coverage by leasing unoccupied beds if necessary, Fitch also evaluates IIT's leverage metrics incorporating the project debt. Including the $26 million off-balance sheet obligation would not materially change IIT's leverage metrics; the ratio of available funds to debt would fall slightly to 28% from 31.6%.

IIT services the facility and commits to leasing unoccupied beds sufficient for the related entity to produce 1.0x debt service coverage. However, IIT has not had to lease any beds since fiscal 2007, which provides some comfort. In addition, related debt service coverage ratios are near 5x, per management. An LOC in place through March 31, 2016 secures the obligation. Management is currently in the process of extending the term of the LOC for two years under the same terms.

IIT's lack of additional financing plans should help maintain a manageable debt burden.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria

Revenue-Supported Rating Criteria (pub. 16 Jun 2014)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=750012

U.S. College and University Rating Criteria (pub. 12 May 2014)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=748013

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=997824

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=997824

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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