A major bond and credit rating agency downgraded its outlook of OU’s ability to repay bonds the university sold Wednesday.

Fitch Ratings changed its two-to-three year outlook from stable to negative, said Douglas Kilcommons, a senior director at Fitch.

The change “reflects the consistently negative operating performance of OU coupled with an aggressive, largely debt financed capital plan that has not been met with a corresponding rise in resources available for its repayment,” a release from Fitch stated.

OU also is challenged by low growth in the number of high school graduates in the state and the small number of those adults who attend college, Kilcommons said.

The U.S. Census Bureau for 2006-2008 estimates state 22.4 percent of Oklahomans have a college degree, compared with 27.4 percent of the nation as a whole.

OU’s negative operating margins in four of the last five fiscal years also hurt OU’s credit outlook, along with declining cash on hand and a high debt burden, Kilcommons and the release said.

OU finishes each year with positive cash, said OU spokesman Jay Doyle.

However, non-cash transactions, such as depreciation of capital assets and long-term health care liabilities “have a negative impact on the overall financial margin,” Doyle said.

While OU President David Boren has said tuition hikes are likely for the next school year, according to Daily archives.

Future tuition or fee hikes can’t be so high that they drive away students, Kilcommons said. Increases in student spending at OU need to be covered by federal and other forms of financial aid, and some of that increase needs to be focused on reducing OU’s debt load.

OU’s enrollment has not been affected by previous tuition increases in the last 10 years, Doyle said, remaining “basically flat.”

OU’s on-campus fall enrollment has ranged from 21,068 in 1998-99 to 23,035 in 2008-09, with a high mark of 24,569 in 2004-05, according to the 2009 OU Factbook.

“We have to balance raising tuition and fees with providing the best academic experience possible,” Doyle said.

OU’s funding from the state dropped 8.4 percent, or $92 million, during the current fiscal year, the release from Fitch stated.

Kilcommons said that problem is not unique to OU, and public institutions around the country are suffering from similar, or even more severe, budget cuts.

The news regarding OU’s bond worthiness isn’t all bad. Fitch maintained OU’s AA- long-term credit rating. AA is Fitch’s second-best creditworthiness rating, according to its Web site. A bond issued by an entity with a AA risk has very low expectations of default, according to the Web site. Fitch adds pluses or minuses “to denote relative status within a major ratings category,” the Web site states. The average rating for higher education bonds is A, or third-best, the release stated.

OU’s AA- rating is supported by its flagship status in Oklahoma, sustained strong liquidity and a diverse revenue base from both research and fundraising, Kilcommons said.

He said OU’s enrollment is expected to grow because the capital improvements the bonds will pay for, should attract new students from both out of state and in a higher proportion of Oklahomans who do attend college.

Wednesday’s bond sale raised $117.95 million for OU, Doyle said.

OU will pay 3.59 percent interest on that debt, he said.

The money raised by the bond sale will pay for the construction of a new utility plant and the Stevenson Life Sciences Research Center, renovations to Gould and Collings Halls and improvements to student housing.