CHICAGO--(BUSINESS WIRE)--Fitch Ratings has affirmed the 'A+' rating on $13.1 million of series 2010B student fee revenue bonds issued by the State of Florida, Board of Governors on behalf of the University of North Florida (UNF).
The Rating Outlook is Stable.
SECURITY
The bonds are secured by pledged fees, which are defined as a first lien on the student health fee (the fee) charged on a per credit hour basis.
KEY RATING DRIVERS
STABLE CREDIT CHARACTERISTICS: The 'A+' rating primarily reflects the broad fee assessed to UNF's main campus student population. The pledged fee is limited but provides consistently sound debt service coverage, which has exceeded 3.0x in recent years.
ENROLLMENT: UNF's enrollment has declined slightly in recent years, although not yet to levels that stress pledged student fee revenues.
MANAGEABLE CAPITAL NEEDS: UNF has no plans to fund major projects with student health fees or to issue parity student health fee debt at this time.
UNF CREDIT PROFILE: Credit characteristics include adequate institutional debt service coverage, an adequate financial cushion, and an improved state appropriation environment (Florida GOs rated 'AAA'/Outlook Stable by Fitch). Enrollment declines and negative GAAP operations remain credit concerns.
RATING SENSITIVITIES
STABLE ENROLLMENT: Failure of the University of North Florida (UNF) to maintain enrollment and pledged fees sufficient to support solid coverage of the pledged student fee bonds could cause negative rating pressure.
CREDIT STRENGTH OF UNF: Long-term rating stability assumes continued adequate institutional debt service coverage, gradual improvement in GAAP operating performance and reserve levels, and stable to growing enrollment.
CREDIT PROFILE
UNF's main campus is located in Jacksonville, FL and primarily serves regional and in-state students. It is one of 12 public universities in Florida. Headcount in fall 2016 was about 15,944, up slightly from 15,882 in fall 2015, but still down from 16,356 in fall 2012. Most students (88%) are under-graduates. UNF typically sees more students entering as transfers than first time freshmen. UNF has large graduate and undergraduate programs in education, health sciences (including nursing), business and engineering. UNF concluded a $130 million capital campaign in 2011 but is not currently in an active campaign.
SOUND STUDENT FEE DEBT COVERAGE
Sound debt service coverage for the student fee bonds from pledged revenues supports the 'A+' rating. Pledged revenues totaled $4.2 million in fiscal 2015, about the same as the prior year. The pledged health fee was $10.25 per credit hour in both fiscal 2015 and fiscal 2016, up from $10.16 in fiscal 2014. Fee rate adjustments have offset modest enrollment declines since fiscal 2013.
Pledged maximum annual debt service (MADS) coverage was a solid 3.19x in fiscal 2015, with similar coverage expected in fiscal 2016. The health fee was reduced modestly for fiscal 2017 (to $10.10), but debt service coverage is expected to remain at over 3.0x. This reduction is not a credit concern at this time. No parity student fee bonds or major fee-funded capital projects are planned at this time.
The pledged health fee is limited, as is typical for Florida public universities. In addition to the health fee, the university's Board of Trustees also assesses 'activity and services' and 'athletic' fees on a per credit hour basis. The sum of these three fees may not exceed 40% of UNF's base tuition fee. The three fees totaled about 39% of the tuition fee in fiscal 2015, leaving limited flexibility to increase rates over time. In addition, the sum of these three fees may not increase by more than the greater of 5% or the same percentage by which the tuition fee was increased, whichever is greater, unless authorized by the state legislature.
Student fee bond covenants are limited, in Fitch's opinion, but comparable to those at other Florida public universities. There is an annual rate covenant of sufficiency (1.0x) and an additional bonds test of 1.2x pro forma maximum annual debt service, based on an average of the last two fiscal years' operating results. There is no debt service reserve.
ENROLLMENT
Because pledged revenues are tied to student enrollment, UNF's overall credit strength is an important rating consideration.
UNF headcount was 15,944 in fall 2016, up slightly from 15,882 in fall 2015 but still down about 2.5% from fall 2012. Freshman acceptance rates remained selective at 50% in fall 2016, comparable to recent years. The freshman matriculation rate is weaker, reflecting some competitive pressure as UNF continues to recruit higher performing incoming students. Student quality remains strong, with entering freshmen ACT scores averaging 26 (the national average is about 21).
UNF CREDIT PROFILE
UNF's financial resources are not legally pledged toward the bonds; however, institutional strengths relate to the student fee pledge.
State operating appropriations to UNF increased in fiscals 2014, 2015 and 2016, reflecting improved state-wide higher education funding as well as performance funding. UNF operating appropriations, including performance funding, were $91.4 million in fiscal 2015 and $96.7 million in fiscal 2016. Fiscal 2017 UNF funding is $89.3 million, down due to weaker comparative scoring in Florida's performance funding formula. Management reports that it budgets any additional performance funding as non-recurring revenue, and as such the 2017 budget remains balanced on a cash basis.
Full-time undergraduate tuition remains modest, at about $6,400 in the current 2016/2017 academic year ($16,366 including room and board) and has been held generally flat for several years. Net tuition and fee revenue was a significant 43% of fiscal 2015 operating revenues, followed by state appropriations at 37%.
UNF's operating performance is typically negative on a GAAP basis. In fiscal 2015, the most current available audit, the Fitch-adjusted operating deficit was negative $16.7 million, a negative 6.8% margin. This is due to a combination of slightly declining enrollment, no recent tuition increases, and non-cash OPEB expenses. Management budgets on a cash basis and expects similar results for fiscal 2016. Fitch views UNF's budgetary position as somewhat pressured. Offsetting negative GAAP-basis operating results are adequate debt service coverage (1.3x for fiscal 2015), a moderate debt burden (5.6%) and historically strong state capital support.
UNF maintains slim but adequate balance sheet resources. Available funds, defined by Fitch as cash and investments less certain restricted net assets, were $56 million in fiscal 2015. This equaled 21.5% of operating expenses and 33% of long-term debt.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria
Revenue-Supported Rating Criteria (pub. 16 Jun 2014)
https://www.fitchratings.com/site/re/750012
U.S. College and University Rating Criteria (pub. 12 May 2014)
https://www.fitchratings.com/site/re/748013
Additional Disclosures
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https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1014895
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https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1014895
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https://www.fitchratings.com/regulatory
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