[January 28, 2015]

Fitch Affirms Florida Atlantic University's Parking Rev Bonds at 'A+'; Outlook Stable

Fitch Ratings has affirmed the 'A+' rating on $20.2 million of State of Florida Board of Governors, parking facility revenue bonds issued on behalf of Florida Atlantic University (FAU).

The Rating Outlook is Stable.

SECURITY

The bonds are secured by a net revenue pledge of FAU's parking system (the system).

KEY RATING DRIVERS

STABLE CREDIT CHARACTERISTICS: The 'A+' rating reflects the system's history of positive operating performance driven by stable enrollment and a mandatory transportation access fee assessed on all students. The system has adequate financial cushion but a very high debt burden.

SOLID DEBT SERVICE COVERAGE: The system consistently generates solid debt service coverage, including maximum annual debt service (MADS) coverage from operations of 1.9x in fiscal 2014.

FAU's CREDIT STRENGTH: Fitch considers FAU's credit profile to be fairly strong based on negative but improving operating results, a sound financial cushion and the expectation of generally stable enrollment in the future. The university's resources are not pledged to pay the bonds, but Fitch believes FAU has strong incentives to support the strategically important parking system.

RATING SENSITIVITIES

ENROLLMENT STABILITY: The Outlook assumes generally stable enrollment and healthy demand as FAU's growth slows. A significant decline in enrollment that pressures the system's operating revenues could weaken debt service coverage and negatively affect the rating.

FAU's CREDIT PROFILE: Deterioration of FAU's strong credit profile, while not expected, could put pressure on the rating given the importance of the enterprise to the university.

CREDIT PROFILE

A comprehensive public university, FAU is a member of the State University System (revenue bonds rated 'AA' by Fitch). In addition to its main campus in Boca Raton, FAU has five satellite campuses located throughout southeast Florida. FAU's fall 2014 headcount enrollment totaled 30,364 students, leveling off after a period of growth from 27,707 in fall 2009. The expectation of generally stable enrollment going forward reflects a strategic shift. The university is increasingly focused on student outcomes and meeting targets under Florida's performance funding framework, which affect state appropriations.

ENROLLMENT SUPPORTS SYSTEM PERFORMANCE

FAU's parking system continues to generate strong positive operations on a full accrual basis, including a 42.5% operating margin in fiscal 2014. A mandatory transportation access fee, which makes up the majority of the system's $7.2 million in operating revenue, is assessed each semester on all students. Fitch considers this a strong source of revenue given FAU's sizeable enrollment base. Fitch anticipates that strong surpluses will continue despite limited expected growth of fee revenues. The mandatory fee rats ($76.90 per fall or spring semester, $32.04 for summer) have been held flat since fiscal 2012 and are not expected to increase in the near term.

HIGH DEBT BURDEN; SOLID COVERAGE

The system's debt burden is very high, with MADS of $2.1 million consuming 29.1% of fiscal 2014 operating revenues. However, a high debt burden is not uncommon for auxiliary enterprises whose purpose is to finance and operate fixed assets such as parking facilities. The system's potentially constrictive debt burden is somewhat offset by strong net revenues pledged for debt service. Coverage of MADS from pledged net revenues remained solid at 1.9x in fiscal 2014. The system currently has no plans for additional debt or major capital projects.

Available funds (cash and investments less certain restricted net assets) totaled $12 million as of June 30, 2014, equal to a strong 290.3% of operating expenses and an adequate 55.2% of debt. The system's financial cushion tends to fluctuate due to the irregular timing of funding capital projects. Fitch takes comfort, however, in the system's strong operating results, solid debt service coverage, and ability to assess a transportation access fee on all students.

FAU's FINANCIAL PROFILE

FAU's operating margin improved to negative 2.8% in fiscal 2014 (unaudited) due to a significant restoration of state appropriations. Sharp (News - Alert) appropriation cuts caused deficits in fiscal 2012 and 2013, before which margins had been positive. Future operations will depend largely on state funding, including FAU's scores on the state's performance funding metrics. The state withheld a small portion of FAU's fiscal 2015 appropriations due to its low score, although half of the funds have already been restored due to FAU's progress under an improvement plan.

The university's unencumbered resources provide a sound buffer, with available funds equal to 46.9% of operating expenses and a stronger 70% of debt (including debt of university enterprises and component units). Available funds grew over each of the past five years due to strong cash-positive operations in most years. The university also maintains a low direct debt burden, with MADS of about $7.9 million consuming just 1.8% of fiscal 2014 unaudited operating revenues. The debt burden increases somewhat but remains moderate (under 6%) including revenue-supported debt of legally separate but related entities issued for a stadium operated by FAU and standalone campus housing projects with subordinate claims to excess revenues of the FAU housing system.

Additional information is available at 'www.fitchratings.com'

Applicable Criteria and Related Research:

'U.S. College and University Rating Criteria' (May 12, 2014);

'Fitch Rates Florida Atlantic University's Parking Rev Bonds 'A+'; Outlook Stable' (Jan. 30, 2013).

Applicable Criteria and Related Research:

U.S. College and University Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=748013

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=978770

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