TMCnet News
Fitch Affirms University of North Florida Student Fee Revenue Bonds at 'A+'; Outlook StableCHICAGO --(Business Wire)-- Fitch Ratings has affirmed approximately $14 million of series 2010AB student fee revenue bonds (the bonds) issued by the State of Florida, Board of Governors on behalf of the University of North Florida (UNF). The Rating Outlook is Stable. SECURITY The bonds are secured by pledged fees, which are defined as a first lien on the student health fee (the fee) charged on a per credit hour basis. KEY RATING DRIVERS STABLE CREDIT CHARACTERISTICS: The 'A+' rating primarily reflects the broad fee assessed to UNF's relatively stable main campus population. The pledged fee provides consistently sound debt service coverage, which is historically well in excess of 2.0x. MANAGEABLE CAPITAL NEEDS: The first phase of the health and wellness center financed with the bonds was completed on time and within budget. UNF does not plan to issue additional parity debt at this time. CREDIT STRENGTH OF UNIVERSITY: While UNF's financial resources are not legally pledged toward the bonds, Fitch believes overall institutional strengths and enrollment relate to the student fee pledge. UNF's credit characteristics include historically stable enrollment, an adequate financial cushion and improvement in the state appropriation environment (Florida GOs rated 'AAA'/Outlook Stable by Fitch) following multiple years of cuts. However, UNF has incurred GAAP operating deficits since fiscal 2009. RATING SENSITIVITIES STABLE ENROLLMENT: Failure to maintain generally stable enrollment to support pledged student fee revenues and related debt service coverage could cause a negative rating action CREDIT STRENGTH OF UNF: Rating stability assumes a gradual improvement in operating performance, reserve levels at or above existing levels, and stable to growing enrollment. CREDIT PROFILE UNF's main campus is located in Jacksonville, FL and serves primarily in-state students. It is one of 12 state universities in Florida. UNF concluded a capital campaign in 2011, raising $130 million. Estimated full-time enrollment (FTE) in fall 2014 was about 13,500, down from 13,900 in fall 2011. Most students (88%) are undergraduates. UNF has large graduate and undergraduate programs in education, health sciences (including nursing), business and engineering. SOUND STUDENT FEE DEBT COVERAGE Sound debt service coverage for the student fee bonds from pledged revenues continues to drive the 'A+' rating. Pledged revenues totaled $3.9 million in fiscal 2013, about 1.5% ahead of the prior year due to a fee increase. The health fee was $10.16 per credit hour in fiscal 2014, up from $9.76 in fiscal 2013 and $9.51 in fiscal 2012. These increases have offset modest FTE enrollment declines in fiscal 2013 and 2014. Pledged maximum annual debt service (MADS) coverage was a solid 2.97x in fiscal 2013. No additional student fee bonds are expected by UNF at this time. The pledged health fee is limited, which is typical in Florida. In addition to the health fee, the university's Board of Trustees also assesses 'activity and services' and 'athletic' fees on a per credit hour basis. The sum of these three fees may not exceed 40% of a student's tuition. In addition, the sum of these three fees may not increase by more than the greater of 5% or the same percentage increase in tuition, whichever is greater, unless authorized by the state legislature. The three fees represented about 29 of tuition in fiscal 2013, which Fitch views favorably as it affords some rate setting flexibility. Student fee bond covenants are limited, in Fitch's opinion, but comparable to those at other Florida public universities. There is an annual debt service coverage covenant of sufficiency (1.0x) and an additional bonds test of 1.2x pro forma maximum annual debt service, based on an average of the last two years of operating results. There is no debt service reserve. CREDIT STRENGTH OF UNF University Enrollment Because pledged revenues are tied to student enrollment, UNF's overall credit strength is an important rating consideration. Headcount averaged 16,239 students over the past five years, but dipped in both fall 2013 (16,258) and fall 2014 (about 16,046). The acceptance rate for incoming freshmen remained selective at 50% in fall 2014. The freshman matriculation rate reflects significant competition from other Florida public universities, as well as fewer graduating high school students in Florida in recent years. It has weakened slightly - to 26% in fall 2014 - compared to a more typical 32%-28% in the last six academic cycles. Student quality remains above the national average. State Appropriations State operating appropriations to UNF declined nearly 27% from $90 million in fiscal 2008 to $66 million in fiscal 2013. The first increase in several years was fiscal 2014, with operating appropriations up about 13% to an estimated $75 million. A 3.5% increase is projected in the current fiscal 2015. UNF increased student charges at double-digit levels in recent years to help offset appropriation cuts. No significant tuition increases were made in fiscals 2014 and 2015, due to positive appropriation growth and pressure to constrain tuition increases. Fitch notes that, even with the prior tuition hikes, full-time undergraduate tuition compares favorably to peer institutions nationally at about $6,400 in the current 2014/2015 academic year ($15,600 including room and board). Student tuition and fee income was a significant 44% of 2013 operating revenues, followed by state appropriations at 31%. Negative UNF Operations UNF's operating performance has weakened steadily on a GAAP basis since fiscal 2008. In fiscal 2013, the most current available audit, the Fitch-adjusted operating deficit was $25 million, a negative 12% margin. This is due to state appropriation cuts, lower than expected enrollment, expense pressures, and growing depreciation and OPEB expenses. Additionally, in fiscal 2013, UNF intentionally budgeted some reserves, which would not be considered operating revenues on a GAAP basis. Management projects budgetary results for fiscal 2014 will be slightly positive. UNF has, positively, produced balanced cash-based results. This was true in fiscal 2013, with a $25 million GAAP deficit but $20 million of depreciation expense and $5 million of non-cash OPEB accruals. Adequate UNF Balance Sheet In Fitch's view, UNF maintains adequate balance sheet resources, which to date have helped mitigate operating pressures. Available funds, defined by Fitch as cash and investments less certain restricted net assets, were $75 million in 2013. This was equal to 31% of operating expenses ($237 million) and 42% of long-term debt ($179 million including a recent bank loan for student housing). These ratios are comparable to those of peer public universities rated by Fitch. Fitch believes UNF's budgetary position remains pressured. Additional information is available at 'www.fitchratings.com' Applicable Criteria and Related Research: --'U.S. College and University Rating Criteria', dated May 12, 2014; --'Fitch Rates University of North Florida's Student Fee Revenue Bonds 'A+'; Outlook Stable (Nov. 19, 2012); --'Fitch Rates Florida's $214MM GO Refunding Bonds 'AAA'; Outlook Stable (Aug. 18, 2014). 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=927356 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 (News - Alert) 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. |
