A credit rating agency last week downgraded its opinion of Northwestern’s financial health, marking a bump in the road to achieving a balanced budget.

Moody’s, a Big Three rating agency, stripped Northwestern of its top credit rating, citing “ongoing weak operating performance projected for the next several years.” The agency based its decision on the University’s high level of debt, low cash flow and the challenge of reducing expenses while facing pressure to invest and remain competitive with other “elite universities.”

In a statement, Craig Johnson, NU’s vice president for business and finance, said the change is “expected to have minimal impact on the University’s day-to-day operations or our ability to borrow.”

“The University will continue to operate with discipline and prudence to move forward as one of the world’s premier centers for research, education, and public service,” Johnson said, noting that he expects the deficit to recover by the end of August 2021.

Lower credit ratings signal great risk of an organization’s ability to pay back its debt. Northwestern was one of a select few schools to hold Moody’s Aaa rating, but the downgrade to Aa1 reflects continuing financial pressure for the University.

NU’s new rating — Aa1 — is still one of the highest Moody’s awards and still investment grade, which the agency said reflected NU’s “still excellent credit quality” supported by strong fundraising and research enterprises, “impressive” student demand and management practices focused on restoring financial stability. Moody’s also switched its outlook to stable from negative, indicating the rating would not move anytime soon.

Northwestern has been trying to fill what turned out to be a $94 million budget gap since early 2017. A leadership change later that year led to a strict fiscal plan that included spending cuts in custodial services, student groups, independent school budgets and administrative offices, among other areas. The fiscal crackdown also resulted in a mass layoff in IT, research and other administrative departments, along with additional subsequent firings across the University.

Moody’s said NU could receive a ratings bump if it improved cash flow margins and the amount of cash on hand. Additional debt, failure to maintain a balanced budget and a reduction in cash on hand could lead to a downgrade.

The ratings affect $2.2 billion of debt, including bonds issued through the Illinois Finance Authority. The agency also affirmed its top ratings on $260.8 million in Adjustable Rate Revenue Bonds and $300 million in Taxable Commercial Paper Notes.

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