A major ratings agency last week gave a weaker forecast of Northwestern’s financial future, warning that the University could lose its top credit rating if its operating performance does not improve.

Standard & Poor’s, one of the Big Three credit rating agencies, revised its outlook on NU’s long-term revenue bonds to “negative” from “stable,” citing worries about the school’s increasing debt. The revision comes as the University grapples with a multimillion-dollar budget deficit, which has slowed the school’s expansion and narrowed the school’s operations.

A credit rating is an opinion of an institution’s ability to pay back its debt, which includes bonds and other forms of borrowing. A “negative” outlook means S&P sees a greater possibility of downgrading NU’s credit rating in the future.

A downgrade of Northwestern’s bonds would signal greater risk that Northwestern would not be able to pay back its debt to investors, meaning Northwestern could face higher costs when borrowing money. A weaker opinion of NU’s underlying financial strength could also impact the University’s ability to borrow short-term debt, a measure used increasingly in the last couple years to address the budget deficit.

Still, S&P reaffirmed its top rating on NU’s short-term and long-term financial instruments, meaning the University is, at least for now, in good standing with the top three rating agencies.

But it warned of a downgrade from its ‘AAA’ credit rating if the University’s finances do not improve, implying that its financial ratios, like measures of debt, are nearing those of institutions with lower ratings.

“The outlook revision reflects the University’s weaker operational results during the past two years compared with historical operating results, with projections that this will continue in fiscal (year) 2019 and fiscal (year) 2020,” Jessica Wood, an S&P credit analyst, said in a news release. The revision is also a reflection of Northwestern’s “expectation of increasing short-term debt” still owed in the next coming years.Northwestern’s use of the short-term debt through lines of credit and commercial paper — a form of rapid cash borrowing typically reserved for high-credit institutions — increased by $145 million to $375 million in 2018 from the previous two years, according to the 2018 financial report.

Moody’s, another credit ratings agency, also downgraded its outlook on Northwestern’s finances to negative in September 2017, though it maintained its top rating as well. Fitch Ratings has not changed its outlook since it reaffirmed Northwestern’s top rating in April 2016.

In a statement, Northwestern spokesman Bob Rowley said the University “will continue to operate with discipline and prudence,” noting that it plans to resolve the budget deficit in 2021.

“We are updating a seven-year financial plan to provide greater guidance for resource allocation, so that Northwestern can move forward as one of the world’s premier centers for research, education and public service,” he said.

Craig Johnson, the senior vice president for business and finance, did not respond to detailed questions and instead directed the inquiry to Rowley. But he said earlier this month that the University is “monitoring” its risk.

“Our perch at the top is a little bit at risk,” he said to Faculty Senate in January.

The University is facing a serious standstill as it tries to fill a $94 million budget gap, which administrators hope to resolve by 2021. Construction projects have been limited to renovations and started projects, dozens of staff were laid off since July, student group funding has been slashed, custodial services have been reduced and the University’s technological capabilities have faltered.

Administrators have blamed a series of large investments Northwestern has made over the years, including buildings, student financial aid and research infrastructure, largely using the $4.16 billion it raised through the WeWill campaign. The University has since overhauled its budgetary process and forced non-salary cuts across schools and departments.

But the adjustments — including pulling from cash reserves and the $10 billion endowment — may not be enough to stop rating agencies from downgrading their forecasts. Administrators are reluctant to pull more from NU’s endowment, as they say a withdrawal greater than 5 percent annually is unsustainable.

“What we want is cash,” Provost Jonathan Holloway said to laughs during a Faculty Senate meeting earlier this month. “So if you’re offering, we’ll take it.”

The Wednesday rating was another setback for administrators, who have expressed confidence in the strength of Northwestern’s financials. S&P noted Northwestern’s “impressive demand” and competitive admissions, strong endowment, diversity of revenue streams and sponsored research as reason for confidence in its assessment.

But students have expressed concern about the impacts of spending cuts, even as administrators aim to limit them.

“There isn’t a lot of transparency about the budget cuts to the students — about how this happened, why it’s happening,” the former president of Associated Student Government Sky Patterson, said in a December interview. ASG substituted emergency funding for lost student group funding due to the deficit.

“Students would like more transparency and more information about University spending,” she added.

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