|[February 12, 2014]
Fitch Affirms Golden Knights Corp. (FL) at 'AA-'; Outlook Stable
NEW YORK --(Business Wire)--
Fitch Ratings affirms approximately $42 million of outstanding Golden
Knights Corporation (GKC) master lease program certificates of
participation (COPs) at 'AA-'.
The Rating Outlook is Stable.
The COPs (the certificates) are primarily secured by a support agreement
(the agreement) from the University of Central Florida (UCF,
university), and additionally secured by pledged revenues from the UCF
Athletic Association (UCFAA) and net revenues from the Brighthouse
Network Football Stadium (stadium). A cash funded debt service reserve
equal to maximum annual debt service (MADS) is also in place.
KEY RATING DRIVERS
UNIVERSITY'S CREDIT CHARACTERISTICS: The 'AA-' rating on GKC's COPs is
anchored on the university's underlying credit stability and strength of
the support agreement provided by UCF.
VIABLE SUPPORT AGREEMENT: Under the agreement, UCF is unconditionally
obligated to shore up any shortfall in GKC revenues, from all of its
legally available, unencumbered revenue, as and if needed, in an amount
equaling up to MADS on the certificates. GKC has not required this
support from UCF during the life of the bonds.
UCF'S OPERATING PERFORMANCE: The university's slightly negative fiscal
2013 results reflected diminished state funding which has been partially
restored for the current fiscal year. UCF's overall financial profile
remains characterized by positive operations buttressed by the ability
to increase student tuition and fee revenue within a sizable and stable
enrollment base and maintenance of balance sheet resources that can
offset declining state funding.
UCF's FINANCIAL PROFILE: The university's inability to generate
consistent operational surpluses and maintain satisfactory balance sheet
resources to service direct debt and assist supported auxiliary projects
as needed, could pressure the rating.
GKC is a component unit of UCF and operates and maintains the Bright
House Network stadium for the service and convenience of the university.
The stadium, which can seat 45,000 attendees, has hosted 32 games over
the past five seasons, with an average attendance of approximately
37,720 per game.
Support Agreement Anchors Enterprise
The university agrees and covenants, pursuant to a support agreement
between UCF and GKC, to annually transfer to the trustee, from legally
available revenues, if needed, an amount not to exceed the maximum
annual debt service on the certificates. UCF's obligation to pay is
absolute and unconditional. Consequently, the rating on GKC's
certificates is primarily based on UCF's ability to meet its obligation.
Fitch notes UCF's support as the primary driver for the rating, but also
acknowledges that GKC related operations including sales and
sponsorships and pledged revenue from the UCFAA has historically been
more than sufficient to cover DS and there have been no draws on the
DSRF. Therefore, Fitch favorably notes that the support agreement from
UCF has not been drawn upon since inception of the bonds.
UCF's Obligations Manageable
Direcly issued long-term debt of UCF, including parking facility
revenue bonds, housing revenue bonds, student health center revenue
bonds and capital and non-cancellable leases for housing and the
biomedical research facility totaled approximately $301 million. The
university's obligation under two separate support agreements, with the
GKC and the Convocation Center (CC), increases total debt to
approximately $574 million.
Through two separate existing support agreements, UCF is annually
obligated to the stadium for approximately $4.5 million and to the
convocation center for up to $16.2 million including both the housing
and arena certificates. These obligations would activate only if
revenues for either project fell short of their respective debt service
requirements and the reserve was drawn upon. Debt service (including GKC
and CC supported debt) calculated to be approximately $38.6 million
comprised 4.6% of UCF's fiscal 2013 operating revenues; coverage from
net income available for fiscal year (FY) 2013 was equal to 1.6x.
UCF's Credit Profile
UCF, by enrollment is one of the largest universities in the nation,
with a fall 2013 headcount enrollment of 59,770, slightly up from fall
2012 and substantially grown over the past six years. The university
relied upon the state of Florida (the state, GO rated 'AAA'/Stable
Outlook by Fitch) for a about 25% of its annual operating revenue in
FY13. While UCF generally produced positive operating margins, decline
in state funding for the year, depressed margins to -0.9%. This margin
was a marked decline from the five year average of approximately 5.6%.
However, state funding restorations for FY2014 and the university's
management practices are expected to support margin improvement for the
current fiscal year.
Growth in student generated revenues ($262 million in FY2013), driven by
enrollment based tuition and fee increases was utilized to partially
offset declines in appropriations from the state. UCF's continuing
affordability, despite recent, fairly significant increases in student
charges mitigates future pricing flexibility concerns.
UCF's available funds, or total cash and investments not permanently
restricted offers additional cushion. FY2013 available funds totaled
$393.9 million, approximately 50.33% of total operating expenses and
68.6% of all debt including UCF's obligations under the existing support
agreements. It is important to note that the calculation assumes UCF is
fully obligated to pay debt service under all outstanding support
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Revenue Supported Rating Criteria', dated May 2013;
--'U.S. College and University Rating Criteria', dated June 2013;
--'Fitch Affirms Golden Knights Corp (FL) at 'AA-'; Outlook Stable',
dated February 2012.
Applicable Criteria and Related Research:
Revenue-Supported Rating Criteria
U.S. College and University Rating Criteria
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