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Fitch Rates Florida Atlantic University's Housing System Rev Bonds 'A+'; Outlook StableFitch Ratings has assigned an 'A+' rating to $50.5 million of State of Florida, Board of Governors (BoG), Florida Atlantic University (FAU) dormitory revenue refunding bonds, series 2016A. The bonds are expected via competitive sale as early as the week of Oct. 31. Proceeds will refund all of FAU's outstanding housing system bonds for savings and pay costs of issuance. In addition, Fitch affirms the 'A+' rating on the following bonds issued on behalf of FAU: --$20.2 million State of Florida Florida Education System housing revenue bonds, series 2003; --$22.3 million State of Florida BoG housing revenue bonds, series 2006A; --$16.4 million State of Florida BoG dormitory revenue refunding bonds, series 2006B. The Rating Outlook is Stable. SECURITY The bonds are secured by a first lien on pledged revenues consisting of the net revenues of FAU's housing system (the system). KEY RATING DRIVERS ESSENTIALITY AND SOLID DEMAND: The 'A+' rating reflects the housing system's importance to FAU and solid demand for on-campus student housing. Occupancy rates have recovered to 96% in fall 2015 and 99% in fall 2016 after a temporary dip to 88% in fall 2014. FAU expects to maintain the current sound occupancy levels based on healthy enrollment trends and improved system management. ADEQUATE DEBT SERVICE COVERAGE: The system maintains adequate debt service coverage. Coverage improved to 1.48x as expected in fiscal 2016 due to increased housing occupancy. UNIVERSITY FINANCIAL PROFILE: FAU's credit profile is characterized by sound demand, a large and stable enrollment base, healthy balance sheet resources, and low leverage. GAAP-basis operating results have been negative, offset by positive cash flow and state capital support. Recent success under state performance funding metrics has resulted in increased operating appropriations. RATING SENSITIVITIES ADEQUATE COVERAGE: Rating stability for Florida Atlantic University's housing system depends on its ability to maintain adequate debt service coverage based on enrollment levels, occupancy trends and good financial management. CREDIT PROFILE FAU is a comprehensive public university and one of the 12 institutions of Florida's State University System. In addition to its main campus in Boca Raton, FAU has five satellite campuses located throughout southeast Florida. The housing system is a component auxiliary enterprise of FAU that finances and operates the majority of on-campus student housing facilities on the Boca Raton campus. ESSENTIALITY AND SOLID DEMAND The housing system is essential to FAU, which serves primarily undergraduate students. In addition to meeting student demand, on-campus housing is aligned with FAU's mission and strategy. FAU can provide enhanced academic support and student services through on-campus housing, which improve both student outcomes and state funding tied to associated performance funding metrics. Essentiality is also expressed in FAU's residency requirement; incoming freshmen are required to live in the housing system if they live more than 30 miles from campus. FAU's large enrollment base provides sound student demand for system facilities. FAU's total headcount exceeds 30,000, with an estimated 15,693 full-time students at the Boca Raton campus, compared to total campus bed capacity of about 4,249. System facilities account for 2,362 beds; the remainder are in non-system facilities financed through the FAU Finance Corporation (FAUFC), a related direct support organization of FAU (FAUFC housing bonds series 2010A and series 2012A rated 'A+'/Outlook Stable). System occupancy improved further to a very strong 99% in fall 2016 due to continued marketing efforts and improvements to amenities. Occupancy had fallen to about 88% in fall 2013 and fall 2014 but recovered to 96% by fall 2015. Management attributes the period of lower occupancy to an unexpected university-wide enrollment decline (now reversed), poorly enforced residency requirements and a popular residential program that was briefly discontinued but then restored. FAU expects to maintain high occupancy levels based on healthy enrollment trends and improved system management. ADEQUATE DEBT SERVICE COVERAGE Debt service coverage improved to 1.48x as expected in fiscal 2016 due to recovered housing occupancy. Coverage had fallen to 1.26x in fiscal 2015 due to the weaker fall 2014 occupancy. FAU demonstrated the system's financial flexibility to manage lower occupancy by concentrating vacant beds in and temporarily closing part of one facility to reduce costs. Coverage is projected to be about 1.6x or better based on steady system performance and debt service savings achieved in the refunding. FAU FINANCE CORP As of March 24, 2010, the senior lien on housing system revenues was closed. Since that time, FAUFC has financed expansion and renovation of on-campus housing. These financings are secured by the revenues generated by their specific projects. However, excess revenues of the system facilities, following the payment of the system's own expenses and debt service, are available to pay debt service on FAUFC bonds. To date, these revenues have not been necessary to supplement debt service on either the series 2010A Innovation Village project or the 2012A student housing project (now known as Parliament Hall). Fitch recognizes that FAU management is closely involved in all financings undertaken by FAUFC. FAU manages its campus housing without distinction between system and non-system facilities, is responsible for setting rates and charges for all beds located on campus, and enforces a freshmen residency requirement. FAU'S SOUND FINANCIAL PROFILE FAU's credit profile is sound and lends support to its auxiliary enterprise, even though general university resources are not pledged to pay the housing system bonds. FAU has a large and stable enrollment base driving demand for on-campus housing. Negative GAAP-basis operating margins largely reflect depreciation expense and are offset by positive cash flow and historically strong state capital funding. The current political environment and a statewide focus on affordability preclude tuition increases and limit revenue-raising flexibility somewhat. However, FAU's state operating appropriations increased for both fiscal 2016 and fiscal 2017 based on strong scores and significant improvement on state performance funding metrics. FAU was most recently tied for the top score among state universities, after having performed near the bottom in fiscal 2014. FAU has good balance sheet cushion, with available funds (unrestricted cash and investments) equal to 45.8% of operating expenses and 73.8% of debt (including certain related-entity obligations). The university's low leverage and debt burden (debt service equaled 1.9% of fiscal 2015 operating revenues) reflect historically strong state capital support and provide good financial flexibility. Additional information is available at 'www.fitchratings.com'. 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