|[May 01, 2014]
Fitch Rates Florida State University's Dormitory Revs 'AA'; Outlook Stable
NEW YORK --(Business Wire)--
Fitch has assigned an 'AA' rating to approximately $35 million of
Florida State University (FSU, university) dormitory revenue bonds to be
issued by the Board of Governors of the State of Florida (Board of
Governors) on behalf of FSU:
The series 2014A bonds are expected to be sold competitively on or about
the week of May 5, 2014. The bonds will be used to refund a portion of
certain outstanding bonds and pay costs of issuance.
In addition, Fitch affirms the 'AA' rating on the following bonds:
--$166.7 million FSU housing facility and dormitory revenue bonds issued
separately through the Florida Board of Education and the Board of
The Rating Outlook is Stable.
The housing facility and dormitory revenue and revenue refunding bonds
(the bonds) are secured by a first lien on net revenues of FSU's student
housing system (the housing system). Several series of the outstanding
bonds include debt service reserves funded to maximum annual debt
service (MADS) either with cash and/or surety bonds.
KEY RATING DRIVERS
SOLID SYSTEM COVERAGE: The 'AA' rating reflects the system's adequate
operating performance and coverage of debt service, fueled by strong
demand for and consistently high occupancy of on-campus beds.
Counterbalancing factors include very high operating and financial
leverage, which is not atypical for stand-alone auxiliary systems.
MANAGEABLE CAPITAL NEEDS: The housing system's ongoing maintenance and
rehabilitation needs remain well-managed and are primarily financed
through operating cash flows and built-up internal reserves. FSU's
capital plans indicate the possibility of additional student
housing-related parity debt in the near term.
LIMITED DORM BOND COVENANTS: Covenants for FSU's dormitory revenue bonds
are limited but similar to those at other Florida public universities,
with an annual debt service coverage covenant of sufficiency (1.0x) and
an additional bonds test of 1.3x pro-forma maximum annual debt service,
based on an average of the last two years of operating results. At this
time, Fitch considers this factor mitigated by a history of debt service
coverage well above minimum pledged levels.
FSU CREDIT STRENGTH: While the university's financial resources are not
legally pledged toward bond repayment, Fitch believes FSU has strong
incentive to support the housing system given its strategic importance
to the university. Fitch regards FSU's credit profile as very strong,
evidenced by healthy student demand, which is supported by the
university's status as a comprehensive research institution,
historically break-even to positive GAAP-based operating margins, good
balance sheet flexibility, a low debt burden, and a fairly diverse
DEBT SERVICE COVERAGE: Substantial weakening of pledged housing-system
debt service coverage could cause a negative rating action.
CREDIT STRENGTH OF FSU: While not expected, consistent generation of
operating deficits over time could negatively impact the housing-system
bond rating due to the strong connectivity between the housing system
and overall university enrollment and credit strength.
FSU is a comprehensive, research university with its main campus located
in Tallahassee. The university's regional accreditation with the
Southern Association of Colleges and Universities was most recentl
re-affirmed in 2004 for a ten-year term. The university is presently
going through the reaffirmation process, the outcome of which is
expected to be announced in late calendar year 2014.
The Housing System
FSU's housing system, serving FSU's student population, consists of
approximately 18 units including four apartment-style residence halls
offering housing options for 6,583 students. The Series 2013A bonds are
being used to replace of some older housing stock and add 338 beds on a
net basis. The project continues to be on time and budget, with an
anticipated completion date in August 2015. FSU's master plan includes a
goal to house 20% of its enrolled full-time students (currently 16%) but
the current focus is to accommodate primarily first time in college
Capacity Fully Utilized
The occupancy rate for the system has exceeded 100% for the past five
years with applications consistently outpacing availability. The housing
system received 9,114 applications as of April 21, 2014 for the upcoming
school year starting in fall 2014, which exceeds the 8,929 applications
received during the same time last year.
Consistently Strong Operating Margins
The housing system has generated strongly positive operating margins
year over year. Fiscal 2013 operations yielded a 33.5% margin. Fitch
anticipates strong performance in fiscal 2014 based on an approximately
5% rate increase across the housing system and full occupancy. Going
forward, management expects to implement a more modest 3% rate increase
across the housing system. Fitch expects to observe evidence of prudent
expense management sufficient to preserve operating performance at or
near historical levels.
High Leverage Somewhat Offset by Good Coverage
The housing system's available funds, calculated by Fitch as total cash
and investments less permanently restricted net assets, improved by
around $1.1 million in fiscal 2013, to $14.2 million. These unencumbered
funds covered fiscal 2013 operating expenses by a healthy 54.1% and
long-term debt by a very weak 8.4%. Additionally, the post-issuance
preliminary maximum annual debt service (MADS) figure represented 32.2%
of fiscal 2013 unrestricted operating revenue. The system's high
leverage position is somewhat offset by its ability to produce
consistently adequate debt service coverage. Fiscal 2013 net revenues,
as calculated by Fitch, covered pro forma MADS (2016), was 1.8x.
FSU's capital plans indicate the possibility of additional student
housing-related parity debt in the near term to address the final phase
of replacing all of the university's aging community-style residence
halls. Given management's track record of ensuring debt-financed
facilities are self-supporting Fitch expects any new debt to be
accompanied by growth in resources sufficient to service that debt.
Florida State University
While FSU's financial resources are not legally pledged to the dormitory
bonds, the university's credit strength is an important consideration
given the strong connectivity between the university and its housing
Headcount enrollment remained effectively flat in fall 2013, at 41,477.
FSU's stable enrollment represents sustained demand despite recent
tuition increases, which were primarily the result of sizeable cuts in
state funding support. Fiscal 2013 financial performance reflected a -2%
GAAP-based operating margin, which was atypical for the university (the
university's operations remained soundly positive on a cash basis).
Based on preliminary admissions statistics, management expects
enrollment to remain relatively steady in fall 2014.
Importantly, the university's low pro-forma MADS debt burden (2% of
fiscal 2013 unrestricted operating revenues) supported solid debt
service coverage (2.7x) despite recent operating pressure. University
management projects operations for fiscal 2014 to be stronger than
fiscal 2013, due to increasing levels of state appropriations, a 1.6%
rate adjustment for in-state tuition/fees, and continued expense
Additional information is available at 'www.fitchratings.com'
Applicable Criteria and Related Research:
--'U.S. College and University Rating Criteria' (May 10, 2013);
--'Fitch Rates Florida State University's Dormitory Revs at 'AA';
Outlook Stable' (June 26, 2013);
--'Fitch Rates Florida's $107MM GO Refunding Bonds 'AAA'; Outlook Stable
(Feb. 28, 2014).
Applicable Criteria and Related Research:
U.S. College and University Rating Criteria
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.
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
[ InfoTech Spotlight's Homepage ]