Fitch Rates University System of Florida Revs 'AA'; Outlook Stable

NEW YORK--()--Fitch Ratings has assigned an 'AA' rating to approximately $23.2 million of university system improvement revenue refunding bonds, series 2014A, issued by the State of Florida, Board of Governors (BoG) on behalf of the State University System of Florida (SUS).

The fixed rate series 2014A bonds are expected to sell competitively as early as the week of April 28. Bond proceeds will be used to refinance outstanding debt and to pay costs of issuance.

In addition, Fitch has affirmed approximately $178.4 million of outstanding university system improvement revenue bonds at 'AA'.

The Rating Outlook is Stable.

SECURITY

The bonds are secured by and payable from a first lien on capital improvement fees (CIF) levied on a per credit hour basis by SUS member institutions on all enrolled students.

KEY RATING DRIVERS

STABLE CREDIT CHARACTERISTICS: The 'AA' rating primarily reflects consistent growth in CIF revenues and sound coverage of related debt service. The system continues to benefit from stable enrollment trends and solid reserve levels. State funding support for operations and capital, while weakened in recent years, is improving.

INTEGRAL ROLE IN STATE HIGHER EDUCATION: The system maintains an essential role in delivering public higher education throughout the state of Florida (GO bonds rated 'AAA' with a Stable Outlook by Fitch).

SOLID DEMAND TRENDS: Healthy student demand for SUS' member institutions continues to support satisfactory coverage. Fitch expects favorable demographic trends and the system's affordability to support stable to modestly growing enrollment going forward.

WEAK COVENANT PACKAGE: The 1.2x additional bonds test is somewhat weak but is offset by the universal nature of the fee assessed on a system-wide enrollment base of over 200,000 on a full-time equivalent (FTE) basis as well as the conservative debt structure (rapid principal repayment under a 20-year amortization schedule).

RATING SENSITIVITIES

MAINTAIN COVERAGE: Substantial weakening of debt service coverage from pledged revenues below historical levels could negatively pressure the rating.

GENERAL SYSTEM HEALTH: While not expected, a trend of weak state operating support and deficit operations across the system could impact student demand and negatively pressure the rating.

CREDIT PROFILE

The SUS consists of 12 public universities across the state of Florida, including the newly formed Florida Polytechnic University, which will open in fall 2014. The BoG is responsible for coordination and management of the university system, and each university is directly governed by its own Board of Trustees.

SOUND COVERAGE FROM PLEDGED REVENUES

An increase in the pledged fee assessed per credit hour on all students, aided by continued growth in FTE enrollment, has generated significant growth in pledged revenues. As a result, pro forma maximum annual debt service coverage exceeded 2.0x in fiscal year 2013 and is projected to remain above 2.0x, as there are no near-term debt plans. The legislature has not authorized additional bonding authority to date.

FLEXIBILITY TO RAISE PLEDGED FEES

Each institution's Board of Trustees, with the approval of the BoG, may increase the CIF up to $2.00 per credit hour over the prior year, with the CIF not to exceed 10% of the base tuition rate per credit hour (limit of $10.50 per credit hour based on fall 2013 undergraduate resident tuition rates). After most institutions increased their CIF rate for the fiscal year 2013, it remained basically flat for fiscal year 2014. The BoG does not expect any increases for the 2014-15 school year. The system's flexibility to increase pledged revenues is viewed favorably by Fitch and is expected to support continued sound coverage.

STABLE DEMAND AND ENROLLMENT SUPPORT FEE BASE

As previously mentioned, sufficiency of pledged revenues is contingent upon demand for SUS' member institutions. FTE enrollment has climbed by a healthy 8.4% over the past five years to a total of 213,272 in fall 2013. Enrollment growth has been supported by strong demand at the undergraduate and graduate levels, demonstrated by increasing application volumes and solid matriculation yields. For the resident students, which account for over 90% of system enrollment, SUS member institutions have a very low average cost of attendance compared to private institutions. Fitch expects that the system's affordability will continue to support favorable enrollment trends.

SYSTEM HEALTHY DESPITE STATE CUTS

While not directly related to pledged revenues, the financial health of the overall system reflects the ability of member institutions to maintain stable operations that support strong demand. SUS member institutions experienced some financial stress in fiscal 2013 due to state appropriation cuts. Appropriations were restored in the fiscal 2014 budget; accordingly, SUS member institutions are expected to demonstrate improved operating margins. Fitch notes favorably management's ability to mitigate the effects of the cuts and maintain operational stability.

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

Applicable Criteria and Related Research:

--'U.S. College and University Rating Criteria', dated May 10, 2013;

--'Fitch Rates State University System of Florida Revs 'AA'; outlook Stable', dated May 19, 2012;

--'Fitch Rates Florida's $170MM GO Refunding Bonds 'AAA'; Outlook Stable', dated Feb. 28, 2014.

Applicable Criteria and Related Research:

U.S. College and University Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=708049

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=827529

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Contacts

Fitch Ratings
Primary Analyst
Tipper Austin, +1 212-908-9199
Analyst
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Alexander Vaisman, +1 212-908-0721
Associate Director
or
Committee Chairperson
Joanne Ferrigan, +1 212-908-0723
Senior Director
or
Media Relations:
Alyssa Castelli, +1 212-908-0540
alyssa.castelli@fitchratings.com
or
Sandro Scenga, +1 212-908-0278
sandro.scenga@fitchratings.com

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Contacts

Fitch Ratings
Primary Analyst
Tipper Austin, +1 212-908-9199
Analyst
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Alexander Vaisman, +1 212-908-0721
Associate Director
or
Committee Chairperson
Joanne Ferrigan, +1 212-908-0723
Senior Director
or
Media Relations:
Alyssa Castelli, +1 212-908-0540
alyssa.castelli@fitchratings.com
or
Sandro Scenga, +1 212-908-0278
sandro.scenga@fitchratings.com