Fitch Ratings has affirmed the 'AA' rating on the following revenue bonds issued on behalf of Florida State University (FSU):
--$21.4 million Florida Board of Education, FSU parking facility revenue bonds;
--$33.4 million State of Florida Board of Governors (BOG), FSU parking facility revenue bonds.
The Rating Outlook is Stable.
SECURITY
The parking facility revenue bonds (the bonds) are secured by a first lien on net revenues of FSU's parking system (the parking system). Several series of the bonds include debt service reserve funds, all supported by surety bonds.
KEY RATING DRIVERS
STABLE CREDIT CHARACTERISTICS: The 'AA' rating primarily reflects the universal nature of the mandatory student transportation access fee (the transportation fee) assessed to FSU's large, and relatively stable, main campus population. The strength of this fee drives the parking system's stable financial performance and adequate debt service coverage.
MINIMAL CAPITAL NEEDS: Upon opening of an under-construction parking garage this summer, FSU will have completed the major elements of its 2010-2015 transportation capital improvement plan. No debt financed projects supported by the parking system are currently planned.
FSU'S SOUND FINANCIAL PROFILE: FSU consistently generates a positive operating margin and maintains a solid balance sheet cushion. While revenues are diverse, state appropriations remain the largest component and continue to weaken. Fitch believes the university remains well positioned to absorb the reductions without significant effects on its credit profile.
CREDIT PROFILE
The parking system generated a robust 26.9% operating margin in fiscal 2011, from $10.4 million in revenues, which was consistent with past performance. In conjunction with a January 2011 bond issuance, the transportation fee (88.2% of revenues in fiscal 2011) increased 6.8% for fiscal 2011. FSU increased the transportation fee 6.3% in the current year and will enact a 6% increase for fiscal 2013. Fitch anticipates operating performance will remain very strong.
The parking system's balance sheet cushion remains modest. Available funds of $16.3 million at the end of fiscal 2011 were overstated due to the inclusion of $16.1 million of bond proceeds in Fitch's calculation. Unrestricted net assets of $1.3 million covered operating expenses and debt by just 16.5% and 2.4%, respectively. The limited cushion is common for university auxiliary enterprise operations and is mitigated by the strong margin.
Debt service coverage generated by the parking system is adequate. As calculated by Fitch, fiscal 2011 net income available for debt service covered MADS of $5.6 million (fiscal 2013) by a thin 1.1 times (x) (coverage per the bond resolution was 1.5x). The approved fiscal 2013 increase in the mandatory transportation fee levied on all students at the main campus mitigates concerns about the light coverage. FSU has no current plans to further leverage the parking system.
FSU generated a 5.3% positive margin in fiscal 2011. According to management, a similar level of performance is projected for fiscal 2012. Fitch believes this level of performance is achievable given the consistency of past results. The state (general obligation bonds rated 'AAA' with a Negative Outlook by Fitch) reduced operating appropriations modestly this year.
A more significant $65 million reduction is included in the state's fiscal 2013 budget; FSU plans to offset this expected cut primarily through use of reserves. The legislature based funding cuts to state universities primarily on their level of estimated operating reserves as of June 30, 2012.
At the end of fiscal 2011, FSU's available funds, defined as cash and investments not permanently restricted or otherwise unavailable for operating expenses, totaled $653 million. AS a percentage of both operating expenses and total long-term debt, available funds represented a solid 68.7% and 266.6%, respectively.
The fiscal 2013 state budget will likely negatively affect FSU's balance sheet cushion in fiscal 2013, but Fitch anticipates gradual restoration of operating reserves through the university's regular generation of annual operating surpluses.
For the fourth consecutive year, FSU expects to request a 15% tuition and fee increase from the BOG for fiscal 2013. While the university anticipates approval, Fitch believes future increases could be limited. The governor, who can make up to six appointments to the 17-member BOG in January 2013, has repeatedly questioned the magnitude of public university tuition and fee increases.
Fitch expects FSU's management would respond to limits to future tuition increases with expense adjustments as it has done in prior years. In Fitch's view, such measures will continue to ensure balanced financial operations.
FSU is one of the largest and oldest of the 11 operating institutions in the State University System of Florida (a 12th institution was approved by the legislature this year and will be fully operational in fall 2014). In fall 2011, total headcount increased a modest 2.1% to 41,710 (76.4% undergraduates). Steady enrollment, despite double-digit percentage increases in tuition and fees in recent years, reflects the university's strong appeal. FSU reports that applications (undergraduate and graduate) for fall 2012 are up nearly 5% from the prior year.
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.
In addition to the sources of information identified in Fitch's Revenue-Supported Rating Criteria and U.S. College and University Rating Criteria, this action was informed by information from the state of Florida's Division of Bond Finance.
Applicable Criteria and Related Research:
--'Revenue Supported Rating Criteria', dated June 20, 2011;
--'U.S. College and University Rating Criteria', dated July 14, 2011;
--'Fitch Rates Florida State University's Parking Revs 'AA'; Outlook Stable', dated Jan. 5, 2011.
Applicable Criteria and Related Research:
Revenue-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=637130
U.S. College and University Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=640830
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