NEW YORK--(BUSINESS WIRE)--Fitch has affirmed the 'AA' rating on the following revenue bonds issued on behalf of Florida State University (FSU):
-- Approximately $17.8 million Florida Board of Education, FSU parking facility revenue bonds;
-- Approximately $30.0 million State of Florida Board of Governors (BOG), FSU parking facility revenue bonds.
The Rating Outlook is Stable.
The parking facility revenue bonds (the bonds) are secured by a first lien on net revenues of FSU's parking system (the parking system). Several series of the bonds include debt service reserve funds, all supported by surety bonds
KEY RATING DRIVERS
GOOD SYSTEM COVERAGE: The 'AA' rating reflects the system's adequate operating performance and coverage of debt service, fueled by a mandatory student transportation fee assessed to all students and decal sales. Counterbalancing factors include a very high leverage position, which is not atypical for stand-alone auxiliary systems, and limited balance sheet strength.
MANAGEABLE CAPITAL NEEDS: FSU recently completed the final major elements of its 2010 - 2015 transportation capital improvement plan (CIP) and is in the very early stages of developing the next multi-year CIP. No debt-financed projects supported by the parking system are currently planned.
LIMITED BOND COVENANTS: Covenants for FSU's parking revenue bonds are limited but similar to those at other Florida public universities, with an annual debt service coverage 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 years of operating results.
FSU CREDIT STRENGTH: While the university's financial resources are not legally pledged toward bond repayment, Fitch believes FSU has strong incentive to support the parking system given its strategic importance to the university. Fitch regards FSU's credit profile as very strong, evidenced by healthy student demand, which is supported by the university's status as a comprehensive research institution, historically break-even to positive GAAP-based operating margins, good balance sheet flexibility, a low debt burden, and a fairly diverse revenue base.
DEBT SERVICE COVERAGE: Substantial weakening of pledged parking-system debt service coverage could cause a negative rating action.
SYSTEM RESERVES: Failure to rebuild system cash reserves over time could cause a negative rating action
CREDIT STRENGTH OF FSU: While not expected, consistent generation of operating deficits over time could negatively impact the parking-system bond rating due to the strong connectivity between the parking system and overall university enrollment and credit strength.
FSU is a comprehensive, research university with its main campus located in Tallahassee. The university's regional accreditation with the Southern Association of Colleges and Universities was most recently re-affirmed in 2004 for a ten-year term. The university is presently going through the reaffirmation process, the outcome of which is expected to be announced in late calendar year 2014.
The Parking System
FSU's parking system had 15,545 vehicle spaces on the main campus in fiscal 2013, which consist of 8,950 surface spaces and 6,595 spaces in six multi-level garages financed through the issuance of outstanding bonds. The university opened two additional parking lots in fiscal 2014 (financed with internal funds and university resources) that restored approximately 300 spots that were permanently removed as the result of building two new residence halls. The daily commuting population is approximately 33,000 students and 5,000 faculty and staff.
Consistently Strong Operating Margins
The parking system has generated strongly positive operating margins year over year. Fiscal 2013 operations yielded a 23.4% margin, which was consistent with historical performance and supported by a 50 cent increase in the per-credit hour transportation fee (79.2% of fiscal 2013 operating revenues) that was sufficient to offset an increase in interest-related expenses. As projected during the system's most recent issuance (Series 2011A bonds), management expects to keep the transportation access fee flat at $8.90 per credit hour going forward.
Limited Balance Sheet Strength
The parking system's available funds, calculated by Fitch as total cash and investments less permanently restricted net assets, decreased to around $2.4 million in fiscal year-end 2013, from $3.7 million in fiscal year-end 2012, primarily due to spending on maintenance. Available funds represented a modest 26.2% of operating expenses and a very weak 5% of long-term debt.
Available funds are expected to dip once again in fiscal 2014, also as a result of ongoing maintenance. Thereafter, management will focus on rebuilding reserves closer to historical levels.
Failure to rebuild system cash reserves over time could cause a negative rating action.
Debt Service Coverage Expected to Improve
Maximum annual debt service (MADS) of around $5.6 million, due in fiscal 2014, represented a very high 47.2% of fiscal 2013 unrestricted operating revenue. The system's leverage position is somewhat offset by its ability to produce consistently adequate debt service coverage. Legal debt service coverage was around 1.6x in fiscal 2013 well above the pledged 1.0x 'sufficiency' annual coverage covenant. Coverage is expected to improve beginning fiscal 2015 as the new MADS figure will be approximately $5 million.
Importantly, Fitch also monitors MADS coverage when including the operation of a shuttle system, as this represents a monthly cash outlay of the system, even though expenses are technically subordinate to debt service. The total annual expense associated with the shuttle system was $2.46 million in fiscal 2013 (total Fitch-adjusted operating expense, which include the shuttle system, totaled $9.1 million in fiscal 2013) and is budgeted to remain relatively steady at $2.5 million in fiscal 2014. MADS coverage based on fiscal 2013 operations would have been 1.2x with the shuttle system included as an operating expense.
Florida State University
While FSU's financial resources are not legally pledged to the 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 41,477. FSU's stable enrollment represents sustained demand despite recent tuition increases, which were primarily the result of sizeable cuts in state funding support. Fiscal 2013 financial performance reflected a -2% GAAP-based operating margin, which was atypical for the university (the university's operations remained soundly positive on a cash basis). Based on preliminary admissions statistics, management expects enrollment to remain relatively steady in fall 2014.
Importantly, the university's low pro-forma MADS debt burden (2% of fiscal 2013 unrestricted operating revenues) supported solid debt service coverage (2.7x) despite recent operating pressure. University management projects operations for fiscal 2014 to be stronger than fiscal 2013, due to increasing levels of state appropriations, a 1.6% rate adjustment for in-state tuition/fees, and continued expense management.
Additional information is available at 'www.fitchratings.com'
Applicable Criteria and Related Research:
--'U.S. College and University Rating Criteria' (May 10, 2013)
--'Fitch Affirms Florida State University's Parking Revs at 'AA'; Outlook Stable' (May 12, 2012)
--'Fitch Rates Florida's $107MM GO Refunding Bonds 'AAA'; Outlook Stable (Feb. 28, 2014)
Applicable Criteria and Related Research:
U.S. College and University Rating Criteria