The $685 million University of Phoenix purchase could trigger a “multi-notch downgrade” in the University of Idaho’s bond rating, according to a newly issued report.

A downgrade could affect $130 million in existing U of I debt, according to an analysis from Moody’s Investors Service, a firm that issues credit ratings on public entities and private corporations worldwide.

U of I officials have long acknowledged that the Phoenix purchase could cause a downgrade. But they have also downplayed the risk, saying the university would be on the hook for no more than $10 million a year for bond payments. Four Three Education — a U of I-affiliated nonprofit — would finance the purchase, and university officials expect Four Three to comfortably cover bond payments.

But Moody’s is skeptical.

In its report, issued Wednesday, Moody’s voices uncertainty about Four Three, and says the purchase still represents “a substantial increase of U of I’s total debt and leverage profile.” The report also refers, obliquely, to Phoenix’s “various legal and regulatory liabilities.” Consequently, purchasing the for-profit online university could expose the U of I to “potential future legal action” from the U.S. Department of Education.

The U of I currently has an A1 bond rating — a low risk, according to Moody’s rankings. Moddy’s had considered the U of I’s rating “stable,” before putting the rating under review last week.

And the review puts the U of I in a financial fog.

“We don’t have nearly enough detail to know where this could land,” Emily Raimes, a Moody’s associate managing director, told The Bond Buyer, a publication focused on municipal finance. “We just wanted to signal that (a downgrade) could be more than one notch. We try to be transparent and if it’s capped at one notch we would say that.”

In a statement, the U of I said it would not address the specifics of the report until Moody’s “has a full understanding of this transaction.”

“University of Idaho has been expecting a reevaluation of our rating based (on) our desire to affiliate with University of Phoenix,” the U of I said in its statement. “It is unfortunate that Moody’s news release relies on false assumptions founded in uninformed public statements and incorrect media reports.”

Financing is one of several obstacles facing the U of I and Phoenix, as they hope to close the sale within the next few months.

A House committee introduced a resolution Thursday urging the State Board of Education to reconsider its support of the Phoenix purchase — threatening a possible lawsuit. And Attorney General Raúl Labrador has threatened to appeal a recent Ada County District Court ruling, which said the State Board’s closed-door discussions of the Phoenix purchase were legal.

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