Fitch Affirms University of Central Florida's Housing Rev Bonds at 'A+'; Outlook Stable

NEW YORK--()--Fitch Ratings has affirmed the 'A+' rating on approximately $96.8 million of housing revenue bonds issued by the State of Florida Board of Governors and Florida Board of Education on behalf of the University of Central Florida (UCF).

The Rating Outlook is Stable.

SECURITY

The bonds are secured by a net revenue pledge of UCF's housing system (the system).

KEY RATING DRIVERS

ADEQUATE COVERAGE FROM OPERATIONS: The 'A+' rating reflects the system's adequate coverage from operations due to strong student demand and occupancy and the lack of additional housing debt plans, offset by a heavy debt burden and limited financial cushion.

STRONG ENROLLMENT BASE DRIVES DEMAND: UCF's large and modestly growing enrollment base drives strong demand for and consistently full occupancy of limited on-campus housing facilities.

UCF's CREDIT STRENGTH: Although the university's resources are not pledged, the housing system benefits from UCF's strong demand and enrollment, generally positive operating performance, diverse revenue streams, healthy balance sheet, and moderate debt burden.

RATING SENSITIVITIES

WEAKER COVERAGE: Substantial weakening of debt service coverage from University of Central Florida's (UCF) pledged housing system net revenues could put negative pressure on the rating.

ADDITIONAL DEBT: Additional housing system debt not accompanied by a commensurate increase in pledged revenues could pressure the rating.

UCF OPERATIONS: While not expected, a deterioration in UCF's credit profile could also put negative pressure on 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.

STRONG HOUSING DEMAND

The system has strong demand for a limited supply of on-campus housing. System facilities account for about 60% of the 7,407 total beds on campus, well below the main campus full-time equivalent enrollment of 27,205 in fiscal 2015. System facilities generally target underclassmen with two-semester (v. 12-month) leases and a high level of academic support and programming. Even with increases in the housing stock over the past five years, fall semester occupancy rates have consistently exceeded 99%. The facilities remain at full occupancy.

Without on-campus capacity for all potentially residential students, management tracks and works with private student-oriented housing facilities near the main campus. The system's limited supply and competitive advantages (on-campus locations, integrated academic and community programming and favorable academic year rates) should continue to support robust demand.

ADEQUATE COVERAGE OFFSETS HIGH LEVERAGE

Not atypical for a standalone university auxiliary, the system has a high debt burden and limited financial cushion. Maximum annual debt service (MADS) accounts for a high 29.8% of operating revenues. Reserves are sound and exceed the system's internal target of 30% of operating revenues but may be spent down for capital projects or transferred. Fitch recognizes that the system's ability to build significant reserves is constrained by the capital-intensive nature of its role.

Offsetting the system's high leverage is a track record of adequate coverage from operations. Pledged net revenues covered MADS by an adequate 1.7x in fiscal 2015. MADS coverage has been 1.3x or better in each of the past five years. UCF has no plans for additional system housing facilities or debt at this time. Potential student housing at the downtown Orlando campus would be owned and financed by a private developer with no recourse to the university or system.

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=1005428

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1005428

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