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TMCNet:  Fitch Affirms Golden Knights Corp. (FL) at 'AA-'; Outlook Stable

[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.

SECURITY

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.

RATING SENSITIVITIES

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.

CREDIT PROFILE

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 agreements.

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

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=709499

U.S. College and University Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=708049

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=820436

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON (News - Alert) THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.


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