Fitch Affirms Educational Advancement Fund, Inc. (IL) Rev Bonds, BBB+; Stable Outlook

Fitch Ratings has affirmed its 'BBB+' rating on approximately $147.6 million of student housing revenue bonds issued by the Illinois Finance Authority. The bonds were issued on behalf of the Educational Advancement Fund, Inc. (EAF) to finance the University Center of Chicago (UCC). UCC is a 1,720 bed student housing project (the project) located in the South Loop of Chicago.

The Rating Outlook is Stable.

SECURITY
The bonds are an unlimited general obligation of EAF secured by the gross revenues of UCC. Additional bond holder protections include a capital maintenance reserve funded annually at 3% of gross revenues from the previous fiscal year, 1.2 times (x) annual debt service (DS) coverage requirement, and a historical 1.2x additional bonds test.

KEY RATING DRIVERS

STABLE OPERATIONS: The rating affirmation reflects EAF's positive operating performance, healthy debt service coverage fueled by high occupancy rates at UCC and effective facilities management by US Equities Student Housing, the project manager. Offsetting the aforementioned positives are EAF's high debt burden and limited liquidity.

ENROLLMENT DRIVES OCCUPANCY: Stability in student demand at the EAF member institutions: Columbia College Chicago (Columbia), DePaul University (DePaul: revenue bonds rated 'A' by Fitch), and Roosevelt University (Roosevelt: revenue bonds rated 'BBB+' by Fitch), supports high occupancy levels at UCC.

CONSISTENT OPERATING PERFORMANCE: EAF has generated positive operating margins for the past six fiscal years. Management's ability to allocate unused room allotments among members, and maximize, non-student related funding sources, including conference housing and retail revenues, bolsters performance.

CREDIT PROFILE:

UCC's annual occupancy rates have exceeded 93% over the past six years; occupancy for fall 2011, including temporary housing, was 99.6%. Consistently strong occupancy is supported by member institution enrollment levels. In the event an EAF member experiences less demand than its bed allotment, operating agreements permit redistribution of beds to other members experiencing oversubscription.

Fitch views the flexibility of the operating agreements favorably as they enable institutions to adjust to periodic fluctuations in demand. Importantly though, in the absence of demand from another member, bed allotments remain the ultimate responsibility of the member to which they were originally assigned. Bed allotments may be filled by an EAF member through direct sub-agreements with other EAF members or through master lease agreements by the project with non-EAF member institutions. At present, the member with the largest capacity allotment for 2012 - 2013 is Columbia, with 51% of total project beds.

EAF operations have improved every successive year. Fiscal 2011 operations generated a 12% margin, the highest since inception of the project. EAF revenue sources, in addition to student housing and food services, include conference housing and retail operations, both of which grew in fiscal 2011. UCC's retail space is leased to tenants via multi-year leases and is a stable source of income.

Offsetting EAF's strong operating profile is a high debt burden and weak balance sheet liquidity. Fitch notes these characteristics are not uncommon for a single-purpose entity created to operate a self-supporting project. MADS ($11.4 million, occurring in 2033) represented a very high 40.8% of fiscal 2011 operating revenues. As of July 31st, 2011, EAF's available funds, or cash and investments not restricted, increased to $7.6 million, up from $3.6 million in fiscal 2010. As a percentage of fiscal 2011 operating expenses ($24.4 million) and debt ($147.6 million excluding principal due in 2012), available funds represented 30.8% and 5.1%, respectively.

EAF was created through the collaboration of the member institutions for the sole purpose of constructing and operating UCC. Opened in 2004, UCC primarily houses students attending the downtown campuses of EAF member institutions. UCC is managed by US Equities Student Housing and an operating committee consisting of one or more representatives of each EAF member.

Additional information is available at www.fitchratings.com. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria and Related Research:
--'Revenue-Supported Rating Criteria' (June 20, 2011);
--'Fitch Affirms Education Advancement Fund, Inc. (IL) Rev Bonds at 'BBB+'; Outlook Stable' (June 10, 2011).

For information on Build America Bonds, visit www.fitchratings.com/BABs.

Applicable Criteria and Related Research:
Revenue-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=637130

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