NEW YORK--(BUSINESS WIRE)--Fitch Ratings affirms the 'A+' rating on approximately $74.4 million of dormitory revenue bonds issued by the State of Florida Board of Governors (Board of Governors) on behalf of Florida International University (FIU).
The Rating Outlook is Stable.
Dormitory revenue bonds are secured by and payable from pledged net revenues derived from the operations of FIU's student housing system (the system).
KEY RATING DRIVERS:
Strong Operating Performance: The 'A+' rating is supported by the system's healthy operating performance, driven by strong demand for and occupancy of on-campus FIU residential facilities. The aforementioned is tempered by concern about the potential for increased financial leverage in the intermediate term as the university plans to debt-finance additional housing facilities.
Stable Demand: Enrollment growth at FIU in recent years has driven consistent demand. Housing demand for the current semester exceeded capacity by more than 300 beds notwithstanding the addition of a new 620 bed facility that opened in fall of 2013.
High Debt Burden: The system's debt burden in fiscal 2013 was quite high, though not inconsistent with other auxiliary systems, at 33.4%. Historically, system debt service coverage has been adequate, averaging 1.44 times (x) over the past five years.
Ongoing Operating Stability: FIU's sound credit profile is generally characterized by positive operating performance fueled by a diversity of revenue streams, healthy balance sheet resources and a fairly low debt burden.
DEBT ISSUANCE: Fitch expects significant issuance of additional debt to be accompanied with a commensurate increase in corresponding resources, the absence of which could pressure the rating.
University Operations: A continued trend of operating deficits resulting from lower state appropriations or tuition-raising flexibility could negatively pressure the rating.
FIU, with over 50,000 students, is one of 12 institutions of higher education in the State University System of Florida. FIU is the largest university in South Florida, operating out of two main campuses in southwest and northeast Miami-Dade County, with additional satellite campuses located in Broward County and downtown Miami.
FIU's annual operating margin declined to negative 3% in fiscal 2013 from negative 1.2% in 2012, reflecting a significant cut in state appropriations, partially offset by increased tuition revenue. State appropriations, however, were restored for fiscal 2014 and FIU expects to return to balanced operations. FIU's available funds (unrestricted cash and investments) of $285 million in fiscal 2013 equaled a healthy 107.4% of long-term debt of $265 million. FIU's credit profile remains sound and supportive of its auxiliary enterprises including the housing system.
SYSTEM OPERATIONS PRODUCE ADEQUATE DEBT SERVICE COVERAGE
The system has consistently generated strong operating margins, averaging 16.6% over the past five years. Fiscal 2013 operations generated another strong margin of 15.4% due to enrollment growth and modest increases in rental rates which remain the primary source of system revenues (98% of the total).
Operating performance resulted in net system revenues available for debt service (economic coverage) as calculated by Fitch of 1.15x maximum annual debt service (MADS). Fitch considers this coverage low compared to other auxiliary systems. Pledged net revenues, which exclude certain expenses, offered slightly stronger, 1.22x coverage of pro forma MADS ($9.7 million).
ENROLLMENT DRIVES STABLE DEMAND
While FIU has historically had a large commuting population, significant enrollment growth in recent years has increased demand for on-campus housing. FIU's headcount increased to 52,980 students in fall of 2013 while its full-time student population, comprising the main market for on-campus housing, increased to 32,063, roughly 9x the on-campus housing capacity of 3,456 beds. Growing enrollment and limited on-campus housing capacity ensure consistently high system occupancy levels and supported an extremely low vacancy rate of about 2% in fiscal 2013.
FIU's long-term plans for housing capacity contemplated roughly doubling the number of students living on campus, especially underclassmen, whose academic outcomes improve when living on campus according to FIU. However, with multiple private student housing developments nearby and stable enrollment forecasts, FIU is reviewing its planned housing expansion, which Fitch views as prudent.
DEBT AND BALANCE SHEET RESOURCES
The system, typical of auxiliary enterprises, has limited liquidity. The auxiliary system's available funds, defined as cash and investments not permanently restricted, totaled $18.2 million in fiscal 2013. This unrestricted liquidity comprised 82.9% of operating expenses and just 16.3% of pro forma system debt.
The MADS burden is quite high at 37.4% of fiscal 2013 operating revenues. Given the system's high debt burden, Fitch expects that any additional borrowing will be based on demonstrated demand and accompanied by a commensurate growth in resources sufficient for the increase in debt service.
Additional information is available at 'www.fitchratings.com'
Applicable Criteria and Related Research:
--'Revenue Supported Rating Criteria' (June 3, 2013);
--'U.S. College and University Rating Criteria' (May 10, 2013);
--'Fitch Rates Florida International University's Parking Revs 'A+'; Outlook Stable' (July 19, 2013).
Applicable Criteria and Related Research:
Revenue-Supported Rating Criteria
U.S. College and University Rating Criteria