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 $34.2 million of parking facility revenue bonds issued by the State of Florida Board of Governors 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 3.5x maximum annual debt service (MADS) and sound Fitch-calculated net coverage of 2x MADS, largely supported by a mandatory student fee. The system has good capacity at the current rating level to support likely additional debt over the next year for a new garage.

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 facility bonds benefit from UCF's strong demand and enrollment, generally positive operating performance, diverse revenue streams, healthy balance sheet, and moderate debt burden.

RATING SENSITIVITIES

WEAK COVERAGE: Fitch expects the University of Central Florida (UCF) parking system's debt service coverage from pledged net revenues to remain around 2x or better including additional debt plans. However, substantial weakening of debt service coverage from pledged parking system net revenues below historical levels could negatively pressure the rating.

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

CREDIT PROFILE

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.

MANDATORY FEE AND STRONG DEMAND DRIVE COVERAGE

The mandatory transportation access fee accounts for the majority of pledged revenues and is a key credit factor supporting the rating. The fee is assessed on materially all students per credit hour. The fee has been steady at $9.10 per credit hour since fiscal 2013. UCF has the legal ability to increase the fee if necessary, but the fee will likely remain flat in the near term due to a focus on affordability and existing debt capacity from strong pledged coverage at the current fee rate.

UCF's large enrollment base supports generation of fee revenues and demand for parking services and facilities. Headcount enrollment has grown from 58,698 in fall 2011 to 63,373 in fall 2015. Enrollment is expected to continue moderate growth as the university builds out capacity and programs at the downtown Orlando campus.

Debt service coverage is sound and has improved in recent years due to positive enrollment trends and good expense management. Legal MADS coverage from pledged net revenues was a strong 3.6x in fiscal 2015, up from 2.9x in fiscal 2011. Legal coverage excludes certain subordinate expenses such as shuttle service costs from pledged net revenues. Fitch also calculates coverage including those subordinate costs. Economic MADS coverage was also sound at 2x and has generally been 1.5x or better.

The system plans to build a new 600-space parking garage for its campus in downtown Orlando over the next couple of years. The project will likely cost around $15 million and will be largely debt-funded. UCF does not intend to raise the mandatory fee in advance of the new debt, as it has historically done. However, the system has sufficient capacity at the current rating level to cover the additional debt from existing pledged net revenues. Fitch expects legal coverage will remain around 2x or better including the additional debt.

HIGH LEVERAGE AND LIMITED BALANCE SHEET STRENGTH

Reserves are sound and currently exceed internal targets of 30% of operating revenues. However, reserves are periodically spent down to fund capital projects. 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 24.1% of operating revenues. However, Fitch recognizes that the system's purpose and capital-intensive nature will constrain its ability to amass significant reserves.

UNIVERSITY OF CENTRAL FLORIDA

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. College and University Rating Criteria (pub. 12 May 2014)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=748013

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1005426

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1005426

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
+1-212-908-0723
Fitch Ratings, Inc.
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
+1-212-908-0723
Fitch Ratings, Inc.
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