NEW YORK--(BUSINESS WIRE)--Fitch has assigned an 'A+' rating to $47.3 million of Florida International University (FIU, university) parking facility revenue bonds to be issued by the Board of Governors of the State of Florida (Board of Governors) on behalf of FIU.
The series 2013A bonds are expected to be sold competitively on or about the last week of July 2013. The bonds will refund the outstanding series 1999 and 2002 bonds in the approximate amount of $16 million, fund the construction of a 2,000-space parking facility and pay costs of issuance. In addition, Fitch affirms the 'A+' rating on currently outstanding parking facility revenue bonds, a portion of which are issued through the Florida Board of Education (Formerly Florida State Board of Regents):
--$47.3 million FIU parking facility revenue bonds.
The Rating Outlook is Stable.
SECURITY
Parking revenue bonds are secured by pledged net revenues derived from the operation of FIU's parking system (the system) and a student transportation access fee assessed to all FIU students.
KEY RATING DRIVERS
Universal Fee: The system is self-supporting and funded primarily by decal sales and a mandatory student transportation fee assessed to all students.
Consistent Financial Performance: The parking system consistently generates a positive operating margin and adequate coverage of system related debt carrying charges.
Enrollment Supports Parking Demand: Stable and consistent enrollment growth results in sustained demand and full utilization of parking system facilities.
High Debt Burden: The parking system's high pro forma debt burden (48.3% of operating revenues) is not atypical of auxiliary systems. This high debt burden is offset by prudent planning by the university which includes increasing parking rates to ensure coverage of debt incurred.
FIU's Credit Strength: FIU's sound credit profile is generally characterized by positive operating performance fueled by a diversity of revenue streams, healthy balance sheet resources and a fairly low debt burden.
RATING SENSITIVITIES
PROJECT COMPLETION: FIU's ability to complete and utilize the new parking facility in a timely fashion will enable the system to realize additional revenue and strengthen DSC which is just adequate for the rating level.
DEBT ISSUANCE: The incurrence of significant additional debt without a plan to increase corresponding resources to service such debt would pressure the rating.
CREDIT PROFILE
FIU, with over 50,000 students, is one of 12 institutions of higher education in the State University System of Florida ('AA', Stable Outlook). FIU is the largest university in South Florida, operating out of two main campuses in southwest and northeast Miami-Dade County, with additional satellite campuses located in Broward County and downtown Miami.
FIU's annual operating margins, typically positive, declined in fiscal 2012 to -1.2%, primarily as a result of increased employee benefit and compensation expenses as well as declining state support. State funding levels are expected to stabilize for state institutions for fiscal 2014 and FIU's ability to curb expenses and leverage growing enrollment will enable a possible return to breakeven margins. Liquidity, defined as available funds (unrestricted cash and investments) equaled $318 million in fiscal 2012, increasing from $275 million in fiscal 2011. FIU's component debt, comprised of both FIU's housing and parking systems, also grew; total debt outstanding for the university inclusive of capital and non-cancellable operating leases and notes, post issuance is expected to be $301 million. Available funds comprised 42.7% of operating expenses and 105.6% of pro forma long term debt. FIU's credit profile, as detailed above, is sound and supportive of its auxiliary enterprises including the parking system.
SYSTEM OPERATIONS PRODUCE ADEQUATE DEBT SERVICE COVERAGE
System margins have consistently been double digits, averaging over 23% for the past five fiscal years but declining as the system grows larger and expenses have risen. Fiscal 2012 operations generated an 11.7% margin. System revenues are primarily derived from a mandatory student transportation fee assessed to all FIU students.
The transportation access fee (fee) supports the system's operations and is typically increased ahead of approved capital projects to generate revenues sufficient to support pro forma debt service. The fee has been increased regularly and precedes the finalization of debt issuance, as the university has tended to do proactively, in anticipation of servicing new debt.
As a result of the system's positive operating performance, net system revenues available for debt service (economic coverage) calculated by Fitch, provides coverage, albeit considered weak compared to similar auxiliary systems. Pledged revenues, which exclude certain expenses and thereby increase funds available for DS coverage, totaled $7.5 million in fiscal 2012, covering pro forma maximum annual debt service (MADS) of $6.7 million by 1.12 times (x). Fitch notes that pledged revenues expected for fiscal 2013 are estimated to be $8.7 million, providing stronger (1.31x) MADS coverage.
ENROLLMENT GROWTH INCREASES PARKING DEMAND
Enrollment growth at FIU has remained positively sloped, driving a large mixed commuter and resident student population demand for parking. FIU's headcount increased to 50,394 students in fall of 2012 from just above 44,000 students in fall of 2010. FIU's strategic plan maintains a goal of achieving total enrollment of 53,000 by fall of 2016 - supported by affordable in-state student tuition and popular undergraduate and graduate business programs. These sound demand characteristics support positive financial performance of the parking system.
DEBT AND BALANCE SHEET RESOURCES
As is typical of auxiliary enterprises, the parking system has limited liquidity. Available funds, defined as cash and investments not permanently restricted, totaled $8.7 million in fiscal 2012 and comprised 70.8% of operating expenses and 14.1% of pro forma system debt. The debt burden is quite high at 40.3% of fiscal 2012 operating revenues. The debt burden will be further pressured by the bond issuance adding approximately $31.7 million in parking debt equating to pro forma MADS ($6.67mm) which constitutes a high 48.3% of operating revenue. Economic pro forma MADS coverage, calculated by Fitch is just sufficient at 1x while pledged revenue of the system which excludes certain expense items provides 1.31x coverage. Fitch positively notes FIU's practice of raising rates for parking and increasing the transportation access fee in anticipation of new debt issuance, which strengthens coverage levels. Given FIU's continuing growth, the universal nature of the fee and strong demand for parking, Fitch expects that any additional borrowing will be accompanied by a commensurate growth in resources sufficient for the increase in debt service.
Additional information is available at 'www.fitchratings.com'
Applicable Criteria and Related Research:
--'Revenue Supported Rating Criteria' (June 6, 2013);
--'U.S. College and University Rating Criteria' (May 10, 2013).
--'Fitch Affirms Florida International University's Bonds at 'A+'; Outlook Stable' (Sept. 29, 2011).
Applicable Criteria and Related Research:
Revenue-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=709499
U.S. College and University Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=708049
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=797155
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