News Column

Fitch Affirms FAU Finance Corp., FL's 2010A Revs at 'A+'; Outlook Stable

May 2, 2014

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings affirms the 'A+' rating on the following series of capital improvement revenue bonds issued by FAU Finance Corporation (FAUFC):

--$8.5 million series 2010A (tax-exempt);

--$112.5 million series 2010A (Build America Bonds).

The Rating Outlook is Stable.

SECURITY

The series 2010A tax-exempt and series 2010A Build America Bonds (the bonds) are secured by pledged revenues generated by Innovation Village, a 1,216-bed housing project (the project), and by a subordinate pledge of net revenues generated by Florida Atlantic University's (FAU) existing housing system (the system). In addition, a debt service reserve fund has been established. FAUFC expects to receive a subsidy equal to 35% of interest payable on the series 2010A Build America Bonds. Due to sequestration, this subsidy payment was reduced by approximately $125,000 on July 1, 2013 and $103,555 on Jan. 1, 2014. The project generates excess cash that can absorb these reductions.

KEY RATING DRIVERS

STABLE CREDIT CHARACTERISTICS: The 'A+' rating reflects a history of strong demand for housing on FAU's campus, timely completion of this and other housing projects, and the historical sufficiency of excess revenues generated by the housing system.

INTEGRATION WITH FAU: The project is being managed as part of FAU's overall housing system. FAU sets rates for this project, the 2012 project (Parliament Hall) and the system. In addition, FAU no longer has the ability to issue senior lien system debt, as the lien has been closed.

CONSTRAINED FLEXIBILITY: Counterbalancing rating factors include the project's sole reliance upon demand-driven revenues to pay debt service, offset somewhat by access to excess cash flows generated by the housing system.

FAU'S SOUND FINANCIAL PROFILE: FAU continues to exhibit good enrollment trends, a growing level of financial resources, and has historically generated positive operating margins on a GAAP basis, except for the past two years when there were large state appropriation cuts. While FAU's financial resources are not pledged to the bonds, the university's ability to maintain healthy operations with stable enrollment trends affects demand for student housing.

RATING SENSITIVITY:

HOUSING OCCUPANCY: Should Innovation Village's occupancy decline to the point where debt service coverage is affected and supplemental support is required from excess revenues of the campus housing system, there may be negative rating action.

CREDIT PROFILE

Florida Atlantic University is a comprehensive university offering 145 liberal arts and professional degree programs across its 10 colleges. In addition to its main campus in Boca Raton, FAU has satellite campuses located throughout southeast Florida. For fall 2013, total university-wide headcount was 30,808, reflecting a 2.6% increase over the fall 2012 level.

Project Characteristics

FAU and a private manager jointly manage the project, which is located on the main campus. According to management, the project opened on budget and in time for the fall 2011 semester, with a 98% occupancy rate. The stand-alone nature of the project is mitigated by a number of attributes. At issuance, FAUFC essentially consolidated the project into its existing housing system by using a portion of bond proceeds to pre-pay ground rent on the land where the project and existing housing facilities reside. FAU sets rates and charges for all housing options on campus, and there is a freshmen residency requirement.

While the occupancy rate declined in 2013 (89% rate in Innovation Village North and 86% in Innovation Village South), debt service coverage was still an acceptable 1.42x (without requiring any financial support from the housing system). Management has cited the discontinuation of the living learning program and an increased number of waivers to the freshmen residency requirement as contributing to this decline. Subsequently, management has reinstated the living learning experience and is now more closely enforcing the freshmen residency requirement. Management reports that overall housing applications (including Innovation Village, Parliament, and the housing system) for fall 2014 are up 63% over the prior year. This increase is viewed favorably by Fitch as it is a strong indicator of likely improvement in occupancy.

Other Campus Housing Options

In addition to Innovation Village, FAUFC issued debt associated with another stand-alone housing project, Parliament Hall (the series 2012A bonds, rated 'A+', Stable Outlook). This is a 614-bed facility, which is secured by Parliament Hall's revenues. This project also opened on time for the fall 2013 semester, with an occupancy rate of 96%, and management reports it is trending ahead of budget. Positively, this project also did not require the use of excess funds available from the university's housing system or excess Innovation Village revenues which are also pledged to the 2012A bonds.

FAU's housing system consists of six housing facilities, with differing price points. Coverage of housing system revenue bonds remains stable, with maximum annual debt service coverage averaging 1.53x over the past five years. There is approximately $66 million of senior lien system bonds outstanding which were issued through the Board of Governors and State of Florida Division of Bond Finance. FAU no longer has the ability to issue senior lien system bonds with the closing of that senior lien.

Collectively, all facilities, including Parliament Hall and Innovation Village, provide a total of 4,163 beds.

Florida Atlantic University

FAU continues to exhibit good enrollment growth. Fall 2013 showed total full-time enrollment at the main Boca Raton campus of 15,710, reflecting a 2.4% increase over the prior year and 25.5% more than the fall 2009 enrollment level; total headcount reached 30,808 in fall 2013. The majority of FAU students are Florida residents, and according to management, account for approximately 96% of the total count. Student quality, as measured by SAT and ACT scores, remains fairly constant, with fall 2013 scores of 1060 and 24, respectively.

FAU's revenue base is fairly diverse, with revenues generated from tuition and fees accounting for 44% of the total, up from 34% in 2009. In 2011, appropriations totaled approximately $170 million but by 2013, the level had declined to $117 million. These changes are attributable to the declining level of state appropriations, and larger tuition increases that were implemented. After years of positive operating performance, 2012 and 2013 registered negative margins (on a GAAP basis); however, the margin is expected to show improvement in fiscal 2014. Approximately $24.7 million of base appropriations have been reinstated and management anticipates that fiscal 2014 will show total appropriations of approximately $151 million.

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

Applicable Criteria and Related Research:

--'Revenue-Supported Rating Criteria' (June 3, 2013);

--'U.S. College and University Rating Criteria' (May 10, 2013);

--'Fitch Affirms FAU Finance Corporation's Capital Improvement Rev Bonds 'A+', Outlook Stable' (July 16, 2012).

Applicable Criteria and Related Research:

Revenue-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=709499

U.S. College and University Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=708049

Additional Disclosure

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.



Fitch Ratings

Primary Analyst

Joanne Ferrigan

Senior Director

+1-212-908-0723

Fitch, Inc.

33 Whitehall Street

New York, NY 10004

or

Secondary Analyst

Colin Walsh

Director

+1-212-908-0767

or

Committee Chairperson

Charles Giordano

Senior Director

+1-212-908-0607

or

Media Relations:

Elizabeth Fogerty, +1-212-908-0526 (New York)

elizabeth.fogerty@fitchratings.com


Source: Fitch Ratings


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