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Fitch Affirms Florida State University's Mandatory Student Fee Revs at 'AA'; Outlook StableFitch Ratings has affirmed the 'AA' rating on approximately $26 million of mandatory student fee revenue bonds, series 2010A (the bonds) issued by the Florida Board of Governors (BOG), on behalf of Florida State University (FSU). The Rating Outlook is Stable. SECURITY The bonds are secured by a first lien on gross revenues of a mandatory per credit hour student health fee (the fee) charged to all students at FSU's main campus in Tallahassee. Additional bondholder security is provided by a cash funded reserve equal to maximum annual debt service (MADS) on the bonds. KEY RATING DRIVERS STRONG DEBT SERVICE COVERAGE: The 'AA' rating primarily reflects the universal nature of the fee assessed to FSU's large, and relatively stable, main campus population. This fee, the primary source of pledged revenues for the bonds, provides consistently strong coverage of debt service - 6.2x in fiscal 2015. MANAGEABLE CAPITAL NEEDS: Construction on the health and wellness center (the center), which was financed with the bonds, was completed in summer 2012, both on time and budget. The facility is sufficient to meet FSU's needs for this type of capital asset through at least the intermediate term. Fitch does not expect additional debt financed capital needs supported by the student health fee. LIMITED BOND COVENANTS: Covenants are limited but comparable 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 MADS, based on an average of the last two years of operating results. FSU CREDIT STRENGTH: The university's financial resources are not legally pledged toward bond repayment, although Fitch believes FSU has strong incentive to support the center 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, fairly diverse revenue base, historically break-even to positive GAAP-based operating margins, good balance sheet flexibility, and low debt burden. RATING SENSITIVITIES DEBT SERVICE COVERAGE: Substantial weakening of debt service coverage on Florida State University's mandatory student fee bonds could cause a negative rating action. SHIFT IN CREDIT PROFILE: A material adverse shift in Florida State University's general credit profile, while not expected, could negatively impact student demand for the university, and negatively impact debt service coverage. CREDIT PROFILE FSU is a public comprehensive research university with its main campus located in Tallahassee and a 25-acre branch campus in Panama City, FL. The university's regional accreditation with the Southern Association of Colleges and Universities was most recently reaffirmed in 2014 for another 10 year term. Total student credit hours totaled 1,050,000 in fiscal 2015, a slight increase (less than 1%) above fiscal year 2014. SOUND DEBT SERVICE COVERAGE Pledged revenues totaled $14.8 million for fiscal 2015, up from $13.8 million in fiscal 2014. Prior to issuance of the bonds, the Florida state legislature authorized a substantial increase in the fee to support construction of the center. The health fee increased to $13.97 for fiscal 2014 and remained constant for fiscal 2015 and 2016. Fiscal 2015 pledged revenues covered MADS of approximately $2.4 million by a strong 6.2x. Debt service on the bonds is fairly level. FLORIDA STATE UNIVERSITY As pledged revenues are tied to student demand, the university's credit strength is an important consideration. Headcount enrollment declined slightly (less than 1%) in fall 2015 to 41,473 and is up a modest 1.6% since fall 2010. Based on preliminary admissions statistics, management expects enrollment to increase slightly in fall 2016. FSU's stable enrollment represents sustained demand. Tuition and fees were held flat for fall 2015 and tuition is expected to be flat again for fall 2016. Fiscal 2015 financial performance reflected a 2.6% GAAP-based operating margin, which was an improvement from a 0.8% margin in fiscal 2014. Operating improvement was primarily the result of a substantial increase in state funding related to FSU's designation as a preeminent state research university and its achievement of certain performance metrics. The university's low pro forma MADS debt burden (2.2% of fiscal 2015 unrestricted operating revenues) supported solid MADS coverage of 4.6x. Total institutional MADS equates to about $24 million (fiscal 2017) and includes debt service on housing, parking, dining, and mandatory student fee revenue bonds. FSU's management team expects operating performance for fiscal 2016 to exceed the fiscal 2015 level due largely to further increases in state appropriations. FSU's balance sheet resources lend further strength and protect it against potential adverse swings in revenues and/or expenses. The university's available funds (defined as cash and investment less nonexpendable and certain expendable restricted net assets) totaled $647 million as of June 30, 2015. Available funds covered fiscal 2015 operating expenses ($1.08 billion) by an adequate 59.7% and pro forma debt (about $291 million) by a solid 223%. Additional information is available at 'www.fitchratings.com' Applicable Criteria Revenue-Supported Rating Criteria (pub. 16 Jun 2014) https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=750012 U.S. College and University Rating Criteria (pub. 12 May 2014) https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=748013 Additional Disclosures Dodd-Frank Rating Information Disclosure Form https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1003322 Solicitation Status https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1003322 Endorsement Policy https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31 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. View source version on businesswire.com: http://www.businesswire.com/news/home/20160426006813/en/ |
