NEW YORK--(BUSINESS WIRE)--Fitch Ratings has placed the 'A+' rating for Florida Gulf Coast University Financing Corp's (FGCUFC or the corporation) $171.2 million housing system and $8.9 million parking system capital improvement bonds (the bonds) on Rating Watch Negative. The bonds were issued by FGCUFC on behalf of Florida Gulf Coast University (the university).
SECURITY
The bonds are a general obligation of the corporation, payable from lease payments received by the corporation under an amended and restated operating lease with the university. The housing system is supported by a broad auxiliary system pledge on its 4,756-bed housing system, while the parking system is supported by an unlimited-student fee pledge. Lease payments are structured to equal debt service on the related housing and parking bonds. Additional security provisions include a segregated debt service reserve fund.
PLACEMENT ON RATING WATCH NEGATIVE
On March 21, 2013, Fitch published a press release affirming the 'A+' ratings on each of the corporation's housing and parking system long-term obligations.
Subsequently, on July 1, 2013, the corporation executed a fixed-rate direct bank loan with STI Institutional & Government, Inc. (STI), a subsidiary of SunTrust Bank Inc., which was used to refund certain outstanding housing and parking capital improvement revenue bonds. The $11.9 million direct bank placement is a general obligation of the corporation, payable from lease payments received by the university housing and parking system, and on parity with $207.8 million of outstanding FGCUFC student housing and parking system capital improvement revenue bonds ($27.8 million is not rated by Fitch).
The bank loan agreement with STI was recently reviewed by Fitch and found to contain cross-default provisions which allow for the potential acceleration of all parity debt under the trust indenture in the event of certain non-major, non-credit-related covenant violations, which can trigger a default if not remedied within as few as 5 business days. Further, an event of default could be triggered due to failure to provide notice of any change in material fact or circumstance represented or warranted within 3 business days.
The Rating Watch Negative reflects Fitch's concern that a non-credit covenant violation under the loan agreement could trigger an acceleration of all parity debt, exposing the university to contingent liquidity and repayment risk. Fitch views the university's current liquidity position as insufficient to cover the acceleration of all parity debt under the trust indenture.
Fitch received notice from management that they are pursuing discussions with STI and expects a resolution in no later than 4 to 6 months. One solution being considered would have the bank waive its right to acceleration for any non-credit event, alleviating the concern associated with a cross default under the trust indenture. Another potential option could be refinancing. Fitch was recently told by university management and bond counsel that the bank is reviewing its policy and potential language changes.
Fitch will continue to monitor progress as both parties seek to resolve the issue. Failure to do so could result in a multi-notch downgrade.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'College and University Rating Criteria' (May 2014);
--'Fitch Rates Florida Gulf Coast University Financing Corporation Housing Project 'A+'; Outlook Stable (March 21, 2013).
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=870197
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