Fitch Rates University of Central Florida's Ser 2012A Dormitory Revenue Bonds 'A+'; Outlook Stable

NEW YORK--(BUSINESS WIRE)--Fitch Ratings assigns an 'A+' rating to $70 million dormitory revenue bonds, series 2012A to be issued by the State of Florida Board of Governors (the board) on behalf of the University of Central Florida (UCF). The bonds are expected to sell competitively the week of Jan. 16, 2012.

Proceeds are expected to fund construction of three residential halls, one fraternity or sorority house and administrative center; renovation of existing facilities; refund a portion of outstanding bonds; and pay various costs of issuance.

At the same time, Fitch affirms the 'A+' rating on approximately $71.2 million of outstanding UCF housing revenue bonds issued by the board.

The Rating Outlook is Stable.

SECURITY

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

KEY RATING DRIVERS

STABLE CREDIT CHARACTERISTICS: The 'A+' rating reflects the system's history of positive, strengthening operating performance, fueled by enrollment growth and related, strong demand for housing. Counterbalancing factors include a high debt burden and limited financial cushion.

ACCEPTABLE DEBT SERVICE COVERAGE: The system's consistent ability to cover housing revenue bond debt service from operations, on average, by 1.5 times (x) over the past five years, partially mitigates the aforementioned concerns.

UCF's FINANCIAL PROFILE: System operations are bolstered by UCF's strengths, notably its historically positive margin, fueled by healthy student demand and enrollment; and sound financial cushion. Management has been successful achieving these outcomes during a weakening appropriation

environment.

CREDIT PROFILE

UCF's housing system remains strong, producing an operating margin of approximately 20% (unaudited) in fiscal 2011, up from the also healthy 17% level achieved the prior year. Strength in system operating performance is largely attributable to very strong student housing demand. Despite increases in housing stock over the past five years, fall semester occupancy rates consistently exceed 99%. The occupancy rate for fall 2011 was 99%, with UCF returning over 500 housing applications unprocessed due to lack of available beds.

Not atypical for a standalone university auxiliary, the system's financial cushion is fairly minimal and its pro forma debt burden high. In fiscal 2011, available funds, defined as cash and investments not permanently restricted, totaled $6.7 million, equaling an adequate 35% of operating expenses, but just 6.0% of pro forma debt. Fitch recognizes the system's ability to amass significant reserves will be constrained by the capital intensive nature of its operations.

Following issuance of the bonds, pro forma maximum annual debt service (approximately $9 million in fiscal 2017) will represent a significant 27% of fiscal 2011 system revenues. The strength of debt service coverage, driven largely by the track record of positive operating performance, helps to offset concerns regarding a debt burden of this magnitude. Pro forma coverage of revenue bond debt service is expected to remain in acceptable range of 1.2x to 1.8x, based upon management's projections of revenues, expenditures, and occupancy which Fitch believes are reasonable. Over the near term, the system has no additional debt plans.

The University of Central Florida is one of the largest university's in the United States, enrolling approximately 58,587 students across 12 campuses during fall 2011, including the main campus northeast of downtown Orlando. UCF consistently generates a positive operating margin; the fiscal 2011 margin was 7.2%, comparable to the five-year average of 7.4%. Robust growth in student generated revenues, driven by increasing enrollment and moderate tuition and fee increases, has offset recent declines in appropriations from the state of Florida (the state; GOs rated 'AAA' with a Negative Outlook by Fitch).

Given UCF's affordability, Fitch believes student demand will not be affected by proposed, significant increases in tuition over the next few years to offset continued weakness in state funding. Moreover, unencumbered resources, which have grown over the past five years as a result of the positive operating performance, will also provide a buffer. UCF's available funds totaled $359 million as of June 30, 2011 (on an unaudited basis), representing a solid 47% and 65% of operating expenditures and pro forma debt, respectively.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria and Related Research:

'Revenue Supported Rating Criteria', dated June 20, 2011

'U.S. College and University Rating Criteria', dated July 14, 2011

Applicable Criteria and Related Research:

Revenue-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=637130

U.S. College and University Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=640830

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