Fitch Affirms University of Central Florida's Parking Facility Revs at 'AA-'; Outlook Stable

NEW YORK--()--Fitch Ratings has affirmed the 'AA-' rating on approximately $40.9 million of parking facility revenue bonds issued by the State of Florida Board of Governors, Florida Board of Education (Formerly Florida State Board of Regents), and Florida Education System on behalf of the University of Central Florida (UCF).

The Rating Outlook is Stable.

SECURITY

Parking facility revenue bonds are secured by the net revenues of UCF's parking system (the system), which include a mandatory student transportation access fee. Certain expenses, including those related to the campus shuttle system, are subordinate to debt service on the parking bonds.

KEY RATING DRIVERS

Sound Coverage: The 'AA-' rating reflects strong legal (before subordinate expenses) coverage over 3.0x maximum annual debt service (MADS) and sound Fitch-calculated net coverage of 1.5x MADS, largely supported by a mandatory student fee. Offsetting factors include a high debt burden and limited financial cushion.

Mandatory Student Transportation Fee: UCF's mandatory transportation access fee generates over 60% of the system's annual receipts. The fees provide continued stability to pledged revenues.

Strong Enrollment Base: UCF's large and stable enrollment base ensures ample demand for parking facilities and supports the system's ability to adequately service debt and maintain sound financial performance.

UCF's Credit Strength: Although the university's resources are not pledged, the parking system benefits from UCF's strong demand and enrollment, generally positive operating performance, diverse revenue streams, healthy balance sheet, and moderate debt burden.

RATING SENSITIVITIES

Weaker Coverage: Substantial weakening of debt service coverage from pledged parking system net revenues could negatively pressure the rating.

Additional Debt: While the system has historically increased fees in advance of new issuance, Fitch notes that additional debt without a commensurate increase in pledged revenues and resources available for debt service could pressure the rating.

UCF OPERATIONS: While not expected, a deterioration of the university's credit profile could negatively pressure the rating.

CREDIT PROFILE

The University of Central Florida, part of the State University System of Florida, is one of the largest universities in the United States, enrolling approximately 59,770 students across 12 campuses during fall 2013, including the main campus northeast of downtown Orlando.

Parking System

The parking system had 17,735 vehicle spaces in fiscal 2013, consisting of 6 parking garages, surface lots, and overflow spaces. Given estimates for long-term enrollment growth, UCF expects to add additional parking facilities over the next few years. Fitch views the large and growing student population positively since the transportation access fee (the largest component of pledged revenues) is assessed to each student on a per credit hour basis.

Mandatory Fee and Strong Demand Drive Margins

The system's operations are consistently positive, including a strong 19.6% operating margin in fiscal 2013. Regular fee increases coupled with enrollment growth have historically resulted in stable performance for the system. While enrollment was essentially flat in fall 2013, it is expected to resume modest growth given strong demand and an improved state appropriations environment, which had been a constraining factor.

The transportation access fee, previously assessed only on students enrolled at the main campus, will be assessed on all students effective fall 2014. UCF held the fee, currently $9.10 per credit hour, flat for fall 2014, but will increase the fee prior to the next parking issuance. This practice ensures that adequate revenues are generated in advance for operational expenditures and increased debt service costs, which Fitch views favorably.

High Leverage and Limited Balance Sheet Strength

The system's available funds, defined as cash and investments (less unspent bond proceeds) not permanently restricted, totaled $9.9 million as of June 30, 2013. These funds comprise 63.7% of operating expenses but a low 23.4% of pro forma long-term debt. Additionally, UCF deposits 3% of annual revenues into a Parking System Maintenance and Equipment Reserve Fund for the benefit of the system. The balance available in the fund ($5.2 million) can be used for atypical maintenance or replacement expenses without diluting the system's limited liquidity. Fitch views this supplemental fund favorably.

The system's high leverage, which is typical of standalone university auxiliaries, is also reflected in its high debt burden, with MADS of $5.1 million consuming a high 26.4% of operating revenues. However, Fitch recognizes that the system's purpose and capital-intensive nature will constrain its ability to amass significant reserves.

Continued Sound Coverage

Despite its high leverage, the system has consistently generated sound coverage. Legal coverage, which excludes subordinate expenses, is very strong at over 3x MADS. Fitch-calculated economic coverage, conservatively based on net system revenues available for debt service, is still sound at 1.5x MADS and has been generally stable. Based on strong university demand and the system's practice of raising fees prior to new issuance, Fitch does not anticipate material dilution of coverage.

University of Central Florida

While UCF's financial resources are not legally pledged to the parking system bonds, the university's credit strength is an important consideration given the strong connectivity between the university and its parking system.

Headcount enrollment remained effectively flat in fall 2013, at 59,770, and is expected to resume modest growth going forward. UCF's stable enrollment indicates sustained demand despite tuition increases in recent years, which were primarily the result of sizeable cuts in state funding support. Due to reduced appropriations, fiscal 2013 operating performance reflected a -0.9% GAAP-based operating margin, which was atypical for the university (the university's operations remained soundly positive on a cash basis). With funding restored and increased in fiscal year 2014 (and most likely for fiscal 2015), however, UCF is expected to return to its characteristic positive GAAP-based margins.

UCF's overall leverage, including component unit debt effectively guaranteed by the university, is manageable. MADS coverage dipped to 1.2x in fiscal 2013 due to the appropriation cuts noted above but has typically been a solid 2x or better and should improve in fiscal 2014. The MADS burden was moderately higher but manageable at 6.4% of operating revenues in fiscal 2013. UCF's available funds of $368.2 million also provide sound financial cushion, representing 47% and 70% of operating expenses and pro forma debt, respectively.

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

Applicable Criteria and Related Research:

--'U.S. College and University Rating Criteria', dated May 12, 2014

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=833458

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Contacts

Fitch Ratings
Primary Analyst
Tipper Austin
Analyst
Fitch Ratings, Inc.
+1-212-908-0723
33 Whitehall St.
New York, NY 10004
or
Secondary Analyst
Joanne Ferrigan
Senior Director
+1-212-908-0723
or
Committee Chairperson
Maura McGuigan
Senior Director
+1-212-908-0591
or
Media Relations
Elizabeth Fogerty, New York, +1-212-908-0526
elizabeth.fogerty@fitchratings.com

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Contacts

Fitch Ratings
Primary Analyst
Tipper Austin
Analyst
Fitch Ratings, Inc.
+1-212-908-0723
33 Whitehall St.
New York, NY 10004
or
Secondary Analyst
Joanne Ferrigan
Senior Director
+1-212-908-0723
or
Committee Chairperson
Maura McGuigan
Senior Director
+1-212-908-0591
or
Media Relations
Elizabeth Fogerty, New York, +1-212-908-0526
elizabeth.fogerty@fitchratings.com