Fitch Ratings has assigned an 'A+' rating to $21.56 million of State of Florida Board of Governors, parking facility revenue bonds, series 2013A issued on behalf of Florida Atlantic University (FAU, or the university). The fixed-rate bonds are expected via competitive sale as early as the week of February 4. Bond proceeds will be used to construct a new parking garage on FAU's main Boca Raton campus, refund outstanding parking facility revenue bonds and pay various costs of issuance.
In addition, Fitch affirms the 'A+' rating on FAU's $10.1 million of outstanding parking facility revenue bonds, the majority of which will be refunded by the series 2013A bonds.
The Rating Outlook is Stable.
The bonds are secured by a net revenue pledge of FAU's parking system (the system).
STABLE CREDIT CHARACTERISTICS: The 'A+' rating reflects the system's history of positive operating performance, fueled by enrollment growth and associated demand for on-campus parking. Counterbalancing factors include the system's high debt burden and limited financial cushion.
SOLID DEBT SERVICE COVERAGE: The rating is further supported by the system's consistent ability to cover parking revenue bond debt service from pledged revenues, historically exceeding 2.0x.
FAU's FINANCIAL PROFILE: The system's operating performance is bolstered by FAU's credit strengths, including generally positive operating results, albeit weakened in fiscal 2012 due primarily to state funding cuts; healthy student demand; and a sound financial cushion. A pressured state funding environment (state of Florida GO's rated 'AAA' with a Negative Rating Outlook by Fitch) continues to pose challenges, with recent and potentially further reductions in appropriations to FAU.
Strong Demand Drives Parking System Performance
FAU's parking system remains strong, producing an operating margin of 35.8% in fiscal 2012. This is just under the 41% average of the prior five fiscal years (2007-2011), but an improvement from the 29.2% margin generated in fiscal 2011. Demand for on-campus parking continues to grow, in conjunction with enrollment growth at FAU's main Boca Raton campus. The students at this campus are assessed a mandatory transportation access fee as part of the process when registering for classes. The fee was $76.90 per semester (fall and spring terms; $32.04 for summer) in fiscal 2012 and made up a majority of the system's $7 million of total operating revenue.
Debt service accounts for a significant portion of overall operations. Upon issuance of the series 2013A bonds, pro forma maximum annual debt service (MADS) will increase to $2.09 million from $1.26 million, and would consume a high 30% of fiscal 2012 operating revenues. Concern over a high debt burden, which is common for a university auxiliary enterprise, is offset by the strength of the revenues pledged to parking revenue bond debt service. Debt service coverage has remained healthy, exceeding 2x over the past several fiscal years. Pro forma MADS coverage falls slightly, but is still satisfactory at 1.66x based on fiscal 2012 pledged revenues of $3.5 million.
In anticipation of this financing, management is prudently proposing an increase in the mandatory transportation access fee to $79.20 effective fall 2013 (fiscal 2014), with incremental increases expected thereafter. Consequently, Fitch expects the system's debt service coverage to remain at or near current levels. Pledged revenues for fiscal 2013 are projected to grow to $3.8 million and provide sound 1.81x MADS coverage.
Also common for a university auxiliary, the system's financial cushion is fairly limited. In fiscal 2012, available funds (cash and investments not permanently restricted) totaled $8.7 million, equaling a solid 194% of fiscal 2012 operating expenses ($4.5 million), but a modest 38.7% of pro forma debt ($22.4 million). While the increase in leverage pressures the system's available funds-to-debt ratio, it remains acceptable for the rating category given its historically strong operating results, solid debt service coverage, and the mandatory nature of the transportation access fee levied on students.
FAU's Financial Profile Sound but Pressured
A comprehensive public university, FAU is a member of the State University System (revenue bonds rated 'AA'). In addition to its main campus in Boca Raton, FAU has six satellite campuses located throughout southeast Florida. FAU's fall 2012 headcount enrollment totaled 30,038 students, reflecting a 2.5% increase over the fall 2011 level, and up 11.2% since fall 2008.
While FAU generally produces operating surpluses, its operating margin declined to negative 5.2% in fiscal 2012, compared to the 2.7% average of the prior five fiscal years. The drop in performance is largely attributed to state funding cuts, which were $12.6 million in fiscal 2012. Appropriations were cut a further $22.4 million for fiscal 2013, or about 18%. Growing enrollment and annual tuition and fee increases have partially offset the decline in appropriations from the state. The university raised tuition by about 15% for each of the past four years (fall 2009-fall 2012).
Given FAU's affordability, Fitch believes student demand will not be affected by the continued large tuition increases (on a percentage basis) as the university attempts to offset continued weakness in state funding. Additionally, FAU's unencumbered resources, which have grown over the past five fiscal years as a result of operating surpluses, also provide a buffer. FAU's available funds totaled $193.7 million as of June 30, 2012, representing a sound 43.3% of operating expenses ($447.6 million) and 71% of pro forma debt ($273 million, including debt associated with the university's various enterprises). The university also maintains a low debt burden, with estimated MADS of about $10.7 million consuming just 2.5% of fiscal 2012 unaudited operating revenues ($425.5 million).
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 12, 2012);
'U.S. College and University Rating Criteria' (May 24, 2012);
'Fitch Affirms Florida Atlantic University's Parking Revenue Bonds at 'A+'; Outlook Stable' (May 24, 2012).
Applicable Criteria and Related Research:
U.S. College and University Rating Criteria
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