[October 20, 2014]

Fitch Affirms Nova Southeastern University's (FL) Rev Bonds at 'BBB+'; Outlook Stable

Fitch Ratings has affirmed the 'BBB+' rating on the following bonds, issued by the Town of Davie, Florida, Higher Educational Facilities Financing Authority (HEFFA) of the State of Florida and/or the Broward County Educational Facilities Authority (BCEFA) on behalf of Nova Southeastern University (NSU or the University):

--$96.1 million series 2013A;

--$20.2 million series 2013B;

--$46.1 million series 2012A;

--$30.7 million series 2011;

--$99.9 million series 2006.

The Rating Outlook is Stable.

SECURITY

The bonds are a general obligation of Nova Southeastern University (NSU).

KEY RATING DRIVERS

POSITIVE OPERATING MARGINS: NSU's consistent generation of positive operating margins is a primary credit strength and anchors the 'BBB+' rating. Modest liquidity and heightened debt levels temper the rating, although the University's operating surpluses continue to generate satisfactory pro forma maximum annual debt service (MADS) coverage.

MANAGEABLE DEBT: The University's continued generation of operating surpluses supported pro forma MADS coverage of 2.3x in fiscal 2014. Additionally, Fitch recognizes the gradual but consistent movement of NSU's debt distribution to a fixed-rate long-term debt portfolio. Finally, NSU has no additional debt plans over the medium term.

MODEST LIQUIDITY LEVELS: Unrestricted cash and investments have grown over NSU's operating history and remain adequate for its budget, which is larger than most like Fitch rated universities. However, available funds as a portion of long-term debt and expenses remain weaker than similarly rated peers.

HEALTH PROFESSIONS DEMAND: NSU benefits from a continued demand for the health professions; total headcount for these programs continues to increase with high selectivity and rising matriculation rates, which Fitch views favorably. Continued demand for these programs remains important for the University's operating margins and a stable credit profile.

RATING SENSITIVITIES:

LIQUIDITY AND DEBT MANAGEMENT: Rating stability for NSU is predicated upon maintaining unrestricted cash and investments and current debt levels with continued generation of positive operating margins.

EXPOSURE TO BANK AGREEMENT TERMS: NSU has several outstanding bank loans that include certain non-financial-related covenants that could trigger an event of default scenario and an acceleration of certain debt with events of default such as the failure to meet various reporting requirements. Fitch views these terms negatively as it places a significant amount of control with the banks. However, certain events of default can be cured or waived by the banks to prevent an acceleration of debt.

CREDIT PROFILE

NSU is the largest independent university in Florida, with its main campus located on 300 acres in Davie, FL. In fiscal 2014, NSU had FTE enrollment of 20,019 students and total adjusted unrestricted revenues of $625.7 million.

OPERATING MARGINS POSITIVE

The 'BBB+' rating continues to be supported by NSU's consistent operating performance which generates adequate-to-strong pro forma MADS coverage, and continued focus on health professions within program offerings which enjoy sustained demand. For fiscal 2014, NSU generated a 4.4% operating margin, which supported pro forma MADS coverage of 2.3x. NSU's management team continues to budget for an approximately 5% operating margin, which Fitch believes will continue to drive solid coverage metrics. Fitch notes that the University incurred higher expenses in fiscal 2014 specifically related to itsvoluntary separation offer (VSO).

ADEQUATE LIQUIDITY METRICS

NSU's liquidity has grown year over year, and unrestricted cash, investments and temporarily restricted investments, also known as available funds (AF), totaled $267.2 million as of fiscal 2014, which signifies a 17.6% increase from the prior year's $227.2 million AF balance. Available funds constituted 44.7% of operating expenses and 55.6% of pro forma debt. These measures are improved from fiscal 2013; however, NSU's unencumbered liquid assets as a percentage of operating expenses and debt are somewhat weaker than similarly rated educational institutions. This weakness is somewhat mitigated by the generation of positive operating margins and continued surplus generation that supports the building of a liquidity cushion over the long term.

MIXED ENROLLMENT TRENDS

NSU's enrollment trends over the past four years continue to reflect a decline in overall headcount. Specifically, total headcount has dropped to 25,670 in fiscal 2014 (fall 2013) from 28,741 in fiscal 2011 (fall 2010), while undergraduate enrollment decreased to 5,156 in fiscal 2014 from 6,174 in fiscal 2011. Part of the decline can be attributed to NSU's shift in strategy and heightened selectivity to improve student academic quality. Incoming traditional undergraduate students as of fall 2014 are required to have a minimum 3.0 grade point average, while NSU's SAT target scores were also raised. The University acknowledges that there may be enrollment pressures due to this initiative, but expects enrollment pick-up once the strategy has been fully achieved.

Fitch notes favorably that the health professions division (primarily graduate programs) continues to experience strong enrollment as overall headcount improved to 6,399 in fiscal 2014 from 6,099 in fiscal 2013 - representing a 5% increase. With graduate FTEs comprising approximately 78% of the total student base, NSU is unlike most of its rated peers.

CONSTRUCTION PROJECT UPDATE

In 2013, NSU borrowed approximately $94.2 million, which in part financed capital projects such as the building of the 215,000 square foot Center for Collaborative Research (CCR) and building of the 54,000 square foot Sports Center II. NSU intends for approximately 60% of CCR space to be used by the University for internal research programs, while the remaining capacity is expected to be leased to external parties.

NSU continues to report healthy interest in the space and expects lease contracts to be in place prior to the completion of the facility, which is scheduled for 2016. NSU expects the CCR to be self-supporting once operational. Management states all projects are on time and on budget and NSU has no additional debt plans at this time.

DEBT PROFILE

NSU's total outstanding long-term debt, including non-cancellable operating leases, is approximately $480.4 million. Pro forma MADS of $32.1 million, excluding non-cancellable operating leases, represented 5.1% of unrestricted operating revenue and covered 2.3x by adjusted net available from unrestricted operating revenues. This pro forma MADS coverage and moderate debt burden continues to compare favorably against rated peers within Fitch's portfolio.

NSU's fixed- to variable-rate-debt mix has changed over time and variable-rate debt including an $8 million bank loan makes up approximately 15% of total long-term debt, vs. 19% in 2013. Additionally, NSU has two series of bonds that are directly placed with Regions Bank and Sun Trust Bank that mature in 2029 and 2024, respectively. The University's series 2008A variable-rate bonds are supported by a direct pay letter of credit, which expires in 2017. While Fitch does not rate the series 2008A, series 2009, and series 2012B bonds ($137.6 million), it does incorporate the debt into its analysis and has reviewed the various bank documents. Certain events of default under the bank loans include the failure to meet financial reporting requirements, timely notice of an event of default, as well as not meeting financial covenants, including a liquidity ratio of 30%, and debt service coverage of 1.35x.

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

Applicable Criteria and Related Research:

'U.S. College and University Rating Criteria' (May 2014);

'Fitch Affirms Nova Southeastern University's Revs at 'BBB+'; Outlook Stable (Oct. 28, 2013).

Applicable Criteria and Related Research:

U.S. College and University Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=748013

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=902714

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