|[February 26, 2014]
Fitch Ratings Affirms Florida International University's Housing Revs 'A+'; Outlook Stable
NEW YORK --(Business Wire)--
Fitch Ratings affirms the 'A+' rating on approximately $74.4 million of
dormitory revenue bonds issued by the State of Florida Board of
Governors (Board of Governors) on behalf of Florida International
The Rating Outlook is Stable.
Dormitory revenue bonds are secured by and payable from pledged net
revenues derived from the operations of FIU's student housing system
KEY RATING DRIVERS:
Strong Operating Performance: The 'A+' rating is supported by the
system's healthy operating performance, driven by strong demand for and
occupancy of on-campus FIU residential facilities. The aforementioned is
tempered by concern about the potential for increased financial leverage
in the intermediate term as the university plans to debt-finance
additional housing facilities.
Stable Demand: Enrollment growth at FIU in recent years has driven
consistent demand. Housing demand for the current semester exceeded
capacity by more than 300 beds notwithstanding the addition of a new 620
bed facility that opened in fall of 2013.
High Debt Burden: The system's debt burden in fiscal 2013 was quite
high, though not inconsistent with other auxiliary systems, at 33.4%.
Historically, system debt service coverage has been adequate, averaging
1.44 times (x) over the past five years.
Ongoing Operating Stability: FIU's sound credit profile is generally
characterized by positive operating performance fueled by a diversity of
revenue streams, healthy balance sheet resources and a fairly low debt
DEBT ISSUANCE: Fitch expects significant issuance of additional debt to
be accompanied with a commensurate increase in corresponding resources,
the absence of which could pressure the rating.
University Operations: A continued trend of operating deficits resulting
from lower state appropriations or tuition-raising flexibility could
negatively pressure the rating.
FIU, with over 50,000 students, is one of 12 institutions of higher
education in the State University System of Florida. FIU is the largest
university in South Florida, operating out of two main campuses in
southwest and northeast Miami-Dade County, with additional satellite
campuses located in Broward County and downtown Miami.
FIU's annual operating margin declined to negative 3% in fiscal 2013
from negative 1.2% in 2012, reflecting a significant cut in state
appropriations, partially offset by increased tuition revenue. State
appropriations, however, were restored for fiscal 2014 and FIU expects
to return to balanced operations. FIU's available funds (unrestricted
cash and investments) of $285 million in fiscal 2013 equaled a healthy
107.4% of long-term debt of $265 million. FIU's credit profile remains
sound and supportive of its auxiliary enterprises including the housing
SYSTEM OPERATIONS PRODUCE ADEQUATE DEBT SERVICE COVERAGE
The system has consistently generate strong operating margins,
averaging 16.6% over the past five years. Fiscal 2013 operations
generated another strong margin of 15.4% due to enrollment growth and
modest increases in rental rates which remain the primary source of
system revenues (98% of the total).
Operating performance resulted in net system revenues available for debt
service (economic coverage) as calculated by Fitch of 1.15x maximum
annual debt service (MADS). Fitch considers this coverage low compared
to other auxiliary systems. Pledged net revenues, which exclude certain
expenses, offered slightly stronger, 1.22x coverage of pro forma MADS
ENROLLMENT DRIVES STABLE DEMAND
While FIU has historically had a large commuting population, significant
enrollment growth in recent years has increased demand for on-campus
housing. FIU's headcount increased to 52,980 students in fall of 2013
while its full-time student population, comprising the main market for
on-campus housing, increased to 32,063, roughly 9x the on-campus housing
capacity of 3,456 beds. Growing enrollment and limited on-campus housing
capacity ensure consistently high system occupancy levels and supported
an extremely low vacancy rate of about 2% in fiscal 2013.
FIU's long-term plans for housing capacity contemplated roughly doubling
the number of students living on campus, especially underclassmen, whose
academic outcomes improve when living on campus according to FIU.
However, with multiple private student housing developments nearby and
stable enrollment forecasts, FIU is reviewing its planned housing
expansion, which Fitch views as prudent.
DEBT AND BALANCE SHEET RESOURCES
The system, typical of auxiliary enterprises, has limited liquidity. The
auxiliary system's available funds, defined as cash and investments not
permanently restricted, totaled $18.2 million in fiscal 2013. This
unrestricted liquidity comprised 82.9% of operating expenses and just
16.3% of pro forma system debt.
The MADS burden is quite high at 37.4% of fiscal 2013 operating
revenues. Given the system's high debt burden, Fitch expects that any
additional borrowing will be based on demonstrated demand and
accompanied by a commensurate growth in resources sufficient for the
increase in debt service.
Additional information is available at 'www.fitchratings.com'
Applicable Criteria and Related Research:
--'Revenue Supported Rating Criteria' (June 3, 2013);
--'U.S. College and University Rating Criteria' (May 10, 2013);
--'Fitch Rates Florida International University's Parking Revs 'A+';
Outlook Stable' (July 19, 2013).
Applicable Criteria and Related Research:
Revenue-Supported Rating Criteria
U.S. College and University Rating Criteria
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