Fitch Affirms UCF Convocation Corporation (FL) Arena Revs at 'AA-'; Outlook Stable

NEW YORK--()--Fitch Ratings has affirmed the 'AA-' rating on $82.8 million of refunding revenue bonds issued by the UCF Convocation Corporation (UCFCC).

The Rating Outlook is Stable.

SECURITY

The bonds are secured by a lien on pledged revenues related to the arena and convocation center. The largest components of the pledge are annual payments from UCF under an operating agreement and the surplus revenues of UCFCC's housing system. In addition, UCF covenants via a support agreement to waive or defer its expenses if UCFCC operations are stressed and to replenish draws on the debt service reserve fund (DSRF) from its legally available revenues. The DSRF is surety-funded to maximum annual debt service (MADS).

KEY RATING DRIVERS

UCF SUPPORT AND HIGH CONNECTIVITY: UCFCC is a direct support organization (DSO) of UCF, created to finance and operate certain essential assets for the university. The 'AA-' rating reflects the essentiality of the assets, overlapping management of UCF and UCFCC, UCF's financial support of UCFCC operations, and UCF's agreement to replenish debt service reserve draws.

UCF's STRONG CREDIT PROFILE: UCF's capacity to support UCFCC is a key credit strength. The university's strong credit profile is characterized by a very large enrollment base, solid demand, positive operations, healthy balance sheet resources, and a moderate debt burden.

PROJECT VIABILITY: UCFCC assets have been complete and operating since 2007 with good demonstrated demand. Fitch believes UCFCC's consolidated (including center/arena and housing operations) economic coverage of debt service from operations demonstrates underlying project viability and good management.

RATING SENSITIVITIES

UCF CREDIT PROFILE: The University of Central Florida's (UCF) willingness and ability to support the operations and debt of the essential UCF Convocation Corporation (UCFCC) are the primary credit strength. Deterioration of UCF's strong credit profile or any indication of reduced willingness to support UCFCC could result in negative rating action.

CREDIT PROFILE

Formed in 2005, UCFCC is a not-for-profit corporation organized and operated for the benefit and purposes of UCF. It is a certified DSO of the university under FL law. UCFCC management is effectively integrated with UCF management. In addition to the center and arena, which host UCF's basketball games and various other events, UCFCC also financed and operates certain housing assets which make up approximately one third of UCF's housing capacity on the main campus. Ownership of the arena and retail assets reverted to UCF after the 2015 issuance, and the corporation continues to operate the assets under an operating agreement with UCF.

UCF was founded in 1963 and is one of the 12 universities in the State University System of Florida. The university serves over 63,000 students on its main campus, hospitality campus, and health sciences campus in Orlando, FL and its 10 regional locations.

UCF SUPPORT ANCHORS RATING

Fitch considers UCF's support of and close ties to UCFCC to be the bonds' primary credit strength. Fitch believes UCF's support is reliable based on the essentiality of the assets and extensive integration of management between UCF and UCFCC.

This connection is evidenced by an operating agreement, whereby UCF pays UCFCC an annual fee to operate the arena facilities and for a minimum number of priority use days. The university has also agreed under a support agreement to waive or defer charges for utilities and other services it provides UCFCC if debt service coverage from net pledged revenues is expected to fall below 1.2x. Fitch believes the strength of this requirement is enhanced by the flow of funds directing pledged receipts to debt service accounts on a first-fill basis.

Fitch believes UCFCC's ability to meet its debt service obligations from operations is strong based on underlying project viability before UCF support and UCF's multiple requirements and unpledged options to support UCFCC operations. If a draw is required on the DSRF, however, UCF also covenants to replenish the reserve from its legally available revenues.

CREDIT STRENGTH OF UCF

UCF's capacity to support UCFCC is very strong. Legally available revenues under the support agreement were approximately $150 million at June 30, 2015, more than 10x the combined MADS of the series 2015 bonds and the UCF Stadium Corporation (f/k/a Golden Knights Corporation) debt for which legally available revenues are also pledged.

The university's credit profile is characterized by a very large enrollment base, with over 63,000 students and solid demand. UCF continued its general trend of positive GAAP-based operating results in fiscal 2015, reflecting enrollment growth and improving state support. The university is well-positioned for continued growth in state appropriations based on its top scores under Florida's performance funding framework. Balance sheet resources are healthy, with available funds (cash and investment less certain restricted net assets) equal to 46.6% of operating expenses and 77.8% of debt (including debt of component units and closely affiliated entities). In addition, UCF maintains a low debt burden, with MADS consuming only 2.2% of fiscal 2015 operating revenue. Including all component unit and affiliated organization debt, UCF's debt burden remains moderate at 4.4%, with strong coverage from operations typically above 2x.

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

Applicable Criteria

Revenue-Supported Rating Criteria (pub. 16 Jun 2014)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=750012

U.S. Nonprofit Institutions Rating Criteria (pub. 05 Jun 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=866668

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1005425

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1005425

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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Contacts

Fitch Ratings
Primary Analyst
Tipper Austin
Associate Director
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
James Lebuhn
Senior Director
+1-312-368-2059
or
Media Relations:
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Tipper Austin
Associate Director
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
James Lebuhn
Senior Director
+1-312-368-2059
or
Media Relations:
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com