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.
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.
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
U.S. College and University Rating Criteria
Revenue-Supported Rating Criteria
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DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING
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AVAILABLE ON 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
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