|[May 01, 2014]
Fitch Affirms Florida State University's Parking Revs at 'AA'; Outlook Stable
NEW YORK --(Business Wire)--
Fitch has affirmed the 'AA' rating on the following revenue bonds issued
on behalf of Florida State University (FSU):
-- Approximately $17.8 million Florida Board of Education, FSU parking
facility revenue bonds;
-- Approximately $30.0 million State of Florida Board of Governors
(BOG), FSU parking facility revenue bonds.
The Rating Outlook is Stable.
The parking facility revenue bonds (the bonds) are secured by a first
lien on net revenues of FSU's parking system (the parking system).
Several series of the bonds include debt service reserve funds, all
supported by surety bonds
KEY RATING DRIVERS
GOOD SYSTEM COVERAGE: The 'AA' rating reflects the system's adequate
operating performance and coverage of debt service, fueled by a
mandatory student transportation fee assessed to all students and decal
sales. Counterbalancing factors include a very high leverage position,
which is not atypical for stand-alone auxiliary systems, and limited
balance sheet strength.
MANAGEABLE CAPITAL NEEDS: FSU recently completed the final major
elements of its 2010 - 2015 transportation capital improvement plan
(CIP) and is in the very early stages of developing the next multi-year
CIP. No debt-financed projects supported by the parking system are
LIMITED BOND COVENANTS: Covenants for FSU's parking 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 1.2x pro-forma maximum annual debt service,
based on an average of the last two years of operating results.
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 parking 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 parking-system
debt service coverage could cause a negative rating action.
SYSTEM RESERVES: Failure to rebuild system cash reserves over time could
cause a negative rating action
CREDIT STRENGTH OF FSU: While not expected, consistent generation of
operating deficits over time could negatively impact the parking-system
bond rating due to the strong connectivity between the parking 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 recently
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 Parking System
FSU's parking system had 15,545 vehicle spaces on the main campus in
fiscal 2013, which consist of 8,950 surface spaces and 6,595 spaces in
six multi-level garages financed through the isuance of outstanding
bonds. The university opened two additional parking lots in fiscal 2014
(financed with internal funds and university resources) that restored
approximately 300 spots that were permanently removed as the result of
building two new residence halls. The daily commuting population is
approximately 33,000 students and 5,000 faculty and staff.
Consistently Strong Operating Margins
The parking system has generated strongly positive operating margins
year over year. Fiscal 2013 operations yielded a 23.4% margin, which was
consistent with historical performance and supported by a 50 cent
increase in the per-credit hour transportation fee (79.2% of fiscal 2013
operating revenues) that was sufficient to offset an increase in
interest-related expenses. As projected during the system's most recent
issuance (Series 2011A bonds), management expects to keep the
transportation access fee flat at $8.90 per credit hour going forward.
Limited Balance Sheet Strength
The parking system's available funds, calculated by Fitch as total cash
and investments less permanently restricted net assets, decreased to
around $2.4 million in fiscal year-end 2013, from $3.7 million in fiscal
year-end 2012, primarily due to spending on maintenance. Available funds
represented a modest 26.2% of operating expenses and a very weak 5% of
Available funds are expected to dip once again in fiscal 2014, also as a
result of ongoing maintenance. Thereafter, management will focus on
rebuilding reserves closer to historical levels.
Failure to rebuild system cash reserves over time could cause a negative
Debt Service Coverage Expected to Improve
Maximum annual debt service (MADS) of around $5.6 million, due in fiscal
2014, represented a very high 47.2% of fiscal 2013 unrestricted
operating revenue. The system's leverage position is somewhat offset by
its ability to produce consistently adequate debt service coverage.
Legal debt service coverage was around 1.6x in fiscal 2013 well above
the pledged 1.0x 'sufficiency' annual coverage covenant. Coverage is
expected to improve beginning fiscal 2015 as the new MADS figure will be
approximately $5 million.
Importantly, Fitch also monitors MADS coverage when including the
operation of a shuttle system, as this represents a monthly cash outlay
of the system, even though expenses are technically subordinate to debt
service. The total annual expense associated with the shuttle system was
$2.46 million in fiscal 2013 (total Fitch-adjusted operating expense,
which include the shuttle system, totaled $9.1 million in fiscal 2013)
and is budgeted to remain relatively steady at $2.5 million in fiscal
2014. MADS coverage based on fiscal 2013 operations would have been 1.2x
with the shuttle system included as an operating expense.
Florida State University
While FSU's financial resources are not legally pledged to the bonds,
the university's credit strength is an important consideration given the
strong connectivity between the university and its parking system.
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 Affirms Florida State University's Parking Revs at 'AA';
Outlook Stable' (May 12, 2012)
--'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
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DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING
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