Fitch Affirms University of North Florida Student Fee Rev Bonds at 'A+'; Outlook Stable

NEW YORK --(Business Wire)--

Fitch Ratings has affirmed approximately $15.3 million of student fee revenue 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 a first lien on the student health fee (the fee) and associated investment earnings. Additional bondholder security is provided by a sum sufficient rate maintenance covenant and an additional bonds test.

KEY RATING DRIVERS

STABLE CREDIT CHARACTERISTICS: The 'A+' rating primarily reflects the universal nature of the fee assessed to UNF's relatively stable main campus population. This fee, the primary source of pledged revenues for the bonds, provides consistently sound coverage of debt service.

LIMITED CAPITAL PLANS: The first phase of the health and wellness center (the center), financed with the bonds, was completed on time and within budget. Fitch does not expect additional fee backed debt issuance, which, in conjunction with anticipated healthy enrollment trends, should allow debt service coverage to remain sound.

CREDIT STRENGTH OF UNIVERSITY: UNF's credit strengths include a good market position, satisfactory financial cushion and recent fundraising success. Counterbalancing factors include a challenging state funding environment (Florida GOs rated 'AAA' with a Negative Outlook by Fitch) and a moderate, but manageable, debt burden.

CREDIT PROFILE

Sound debt service coverage from pledged revenues continues to be the primary driver for the 'A+' rating. Management reports that pledged revenues totaled $3.83 million for fiscal 2012, slightly below the $3.88 million registered in fiscal 2011. Despite this modest decrease, fiscal 2012 pledged revenues covered maximum annual debt service (MADS) by a sound 2.88x. For fiscal 2013, management increased the fee by 2.6%, to $9.76 per credit hour. Fitch notes positively that the fee is expected to remain at its current rate going forward.

As pledged revenues are tied to student demand, UNF's sound market position remains a key credit strength. Total headcount enrollment has averaged around 16,239 students over the past five years, including 16,357 students in fall 2012. The acceptance rate for incoming freshmen has decreased in recent years while the matriculation rate has remained relatively stable. Simultaneously, the average freshmen SAT has increased year-over-year, consistently exceeding state and national averages. Fitch believes the combination of the aforementioned factors provide UNF with a healthy amount of demand flexibility to achieve future enrollment targets.

State approprations for operations remained pressured for a third consecutive year in fiscal 2011. Management successfully increased student charges year-over-year to offset these reductions. However, operating expense increases in fiscal 2011 primarily associated with compensation and benefits drove the operating margin to decline from generally break-even levels to a solidly negative 7.1%. Based on preliminary data, a similar level of operating performance is anticipated for fiscal 2012.

In Fitch's view, the university maintains a sufficient level of balance sheet resources to mitigate operating pressures. Available funds, defined by Fitch as cash and investment less net assets deemed non-expendable, totaled $69.6 million in fiscal 2011. These funds covered operating expenses and long-term debt by an adequate 30.1% and 45.1%, respectively. A similar level of coverage was evident in fiscal 2012 based on Fitch's analysis of preliminary financial statements.

Fitch believes UNF's budgetary position could be further pressured in the near term. Four-year public higher institutions in Florida face political pressure to limit the rate of tuition growth. Moreover, the likelihood of the legislature restoring previous state appropriation cuts for operations is uncertain. Fitch will closely monitor management's ability to respond to these and any other fiscal challenges in future surveillance.

The university's MADS stood at a moderate 5.2% of fiscal 2011 operating revenues. UNF's track-record of generally producing at least 1x MADS coverage from annual operations is an important offsetting factor.

UNF's main campus is located on 1,381 acres in Jacksonville, FL and serves primarily in-state students as one of 11 state universities (a 12th institution was approved by the legislature this year and will be fully operational in fall 2014). The university's capital campaign with a goal of $110 million is scheduled to conclude on Dec. 31, 2012. Fitch expects the outcome to be favorable given the success of the university's previous capital campaign which raised $103 million, or $38 million above its original goal.

For more information see the Fitch release, 'Fitch Rates University of North Florida's Student Fee Revenue Bonds 'A+'; Outlook Stable,' available on the Fitch website at www.fitchratings.com.

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', dated June 12, 2012

'U.S. College and University Rating Criteria', dated May 25, 2012

Applicable Criteria and Related Research:

U.S. College and University Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm rpt_id=679152

Revenue-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm rpt_id=681015

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