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MOODY'S ASSIGNS A2 RATING TO THE SERIES 2011 DORMITORY REVENUE BONDS AND AFFIRMS A1 ISSUER LEVEL RATING ON THE UNIVERSITY OF WEST FLORIDA; OUTLOOK IS STABLE

10 Jan 2011

UNIVERSITY WILL HAVE $44.4 MILLION OF RATED DEBT OUTSTANDING

Escambia County Housing Finance Authority, FL
Higher Education
FL

Moody's Rating

ISSUE

RATING

Dormitory Revenue Bonds (Univeristy of West Florida Foundation Inc. Project), Series 2011

A2

  Sale Amount

$17,000,000

  Expected Sale Date

01/21/11

  Rating Description

Dormitory Revenue Bonds Public Higher Education

 

 
Moody's Outlook   Stable
 

Opinion

NEW YORK, Jan 10, 2011 -- Moody's Investors Service has affirmed its A1 issuer level rating on the University of West Florida ("UWF" or the "University") and has assigned an A2 rating to the $17.0 million of Series 2011 Dormitory Revenue Bonds to be issued through the Escambia County Housing Finance Authority (the "Authority"). Pending market conditions, the University also intends to insure the Series 2011 bonds through Assured Guaranty (rated Aa3). Please refer to the "RATED DEBT" section for the rated bonds outstanding. The rating outlook is stable.

RATING RATIONALE: The A1 issuer level rating and A2 debt rating with a stable outlook reflect the University's stable market position as the only state university located in northwest Florida that continues to experience strong enrollment growth, a favorable balance sheet position, and solid debt service coverage. The A2 debt rating on the Series 2010 Bonds, rated one notch below the A1 issuer level rating, is driven by the bonds being secured by a specific revenue stream that are limited and special obligations of the University of West Florida Foundation, Inc. payable from the Net Revenues of the Dormitory System rather than the broader general obligation of the University.

USE OF PROCEEDS: Approximately $17 million of the Series 2011 Bond proceeds will be used to pay construction costs of a student housing facility, to fund capitalized interest through August 1, 2012, fund a debt service reserve surety policy, as well as to pay the cost of issuance.

LEGAL SECURITY: The A1 issuer rating is not currently assigned to any debt obligations and reflects the unsecured general obligation credit characteristics of UWF and does not incorporate an analysis of the legal security of the organization's bonds.

The A2 rating on the Series 2011 Bonds are secured by all income and revenues derived by the Authority from the Loan Agreement. According to the Second Supplemental Trust Indenture, the obligations are limited and special obligations of the University of West Florida Foundation, Inc. (the "Foundation") payable only from the Net Revenues of the Dormitory System. The Series 2011 Bonds are on parity with the outstanding debt obligations of the Foundation. The Series 2011 Bonds are secured by a debt service reserve fund that has a Reserve Requirement of an amount equal to the Maximum Annual Debt Service which does not exceed the lesser of 1.25 times the average annual Debt Service Requirement of the Bonds or ten percent of the Bonds' proceeds. Additional Bonds are not required to have a separate debt service reserve fund. The Debt Service Reserve Fund has been funded with a surety bond for the Series 1998 (refunded in December, 2010) and Series 2005 Bonds and has been cash funded for the Series 2009 Bonds. Management intends that the Series 2011 Bonds reserve requirement will be funded with a surety bond. The subaccounts for each series in the debt service reserve fund secures only the particular series. Additional bonds may, but are not required to have a separate reserve fund created which secure only such Bonds. The Foundation is subject to a Rate Covenant that the Dormitory System Revenues in each Fiscal Year will be equal to all Operating Expenses of the Dormitory System for the Fiscal Year and the Net Revenues will be at least 1.20 times of the Debt Service Requirement. In FY 2010 Net Dormitory Revenues covered debt service 1.81 times. However, failure of the Foundation to comply with the coverage requirement will not constitute an Event of Default under the Loan Agreement so long as the Foundation takes all actions to correct the deficiency. A Rate Covenant Ratio of less than 1.00 times at the end of any Fiscal Year may constitute an Event of Default.

DEBT-RELATED INTEREST RATE DERIVATIVES: None

STRENGTHS

*Stable market position as a mid-sized public university located in Pensacola, Florida the only state university located in northwest Florida. UWF has been experiencing strong enrollment growth during the past two years, enrolling 9,649 full-time equivalent (FTE) students in fall 2010, which was a 5% increase from fall 2009.

*Favorable balance sheet position with total financial resources growing 36% to $110.0 million from FY 2005 to FY 2009. FY 2009 coverage of expendable financial resources to pro-forma debt and operations is solid at 0.94 times and 0.52 times, respectively.

*Generally balanced operating performance with some improvement of its operating margin, which averaged a negative 2.5% from FY 2007-FY 2009. The University has solid debt service coverage with a strong three-year average pro-forma debt service coverage of 4.1 times over the same timeframe.

CHALLENGES

*State operating appropriations represent a high proportion of Moody's adjusted operating revenues, which represented 52% of UWF's operating revenue in FY 2009.

*Budget pressures at the State level (Aa1 general obligation rating with a stable outlook) have led to reduced state operating support. Despite historically strong state support for both operations and capital, budgetary pressures have caused reductions in state aid. In FY 2009, the University faced a 14% cut in state appropriations and a 12% cut in FY 2010.

*Thin cash flow margin of 5.5% in FY 2009 relative to peer institutions, which in part is driven by the University's low net tuition per student. The state approved a 15% per year tuition increase until tuition and fees reach the national median for public universities, which Moody's considers a credit positive for UWF.

MARKET POSITION/COMPETITIVE STRATEGY: MID-SIZED PUBLIC UNIVERSITY EXPERIENCING BURGEONING ENROLLMENT GROWTH WITH EXPECTATIONS OF FURTHER GROWTH

Moody's expects that UWF, a public university located in Pensacola, Florida, will continue to experience enrollment growth due to recent trends of growing enrollment, projected favorable demographics in the state for high school graduates coupled with low net tuition. UWF is a mid-sized university that was founded in 1963 and began admitting freshmen and sophomore students in the late 1980's. Fall 2010 total full-time equivalent enrollment (FTE) was 9,649 students, which was a 5% increase from fall 2009. Moody's also believes that UWF has a good market position as one of 11 public higher education institutions in the state and the only state university located in northwest Florida. UWF competes primarily with public colleges and universities in Florida such as Florida State University, Pensacola State College, University of North Florida, University of Central Florida, Florida Gulf Coast University, and University of Florida.

The University largely serves an undergraduate student population (86% of total enrollment in fall 2009) and over the last two years has experienced a high rate of enrollment growth, which is attributed to the countercyclical effect of the declining economy and a recently established marketing and outreach campaign, the University's first large scale campaign in recent history. Enrollment growth peaked at approximately 8% in fall 2009 from fall 2008. Seventy-nine percent of the student population is from the panhandle, an eight county service area, but the University has been increasing the draw from the middle of the state and has a long-standing tuition agreement with adjacent counties in Alabama. Management plans to grow enrollment approximately 4.5% each year with a focus on growing the undergraduate student population. Also contributing to the University's enrollment growth is its collaborative approach with community colleges and strong articulation agreements to improve access for students planning to transfer to a four-year institution, such as UWF, after completing degree requirements from an in-state public two-year college.

Public university tuition rates in Florida for resident students are among the lowest in the nation with in-state undergraduate students paying around $4,155 in tuition and fees in the 2010-2011 academic year. Although in-state tuition rates remain relatively low, the state approved a 15% per year tuition increase until tuition and fees reach the national median for public universities. Management has engaged in a tuition elasticity study that is analyzing both resident and non-resident tuition rates. Moody's believes that in-state tuition rates will remain affordable despite the sizeable percentage increases and competitive with Florida public and private universities.

OPERATING PERFORMANCE: GENERALLY BALANCED OPERATING PERFORMANCE WITH STRONG DEBT SERVICE COVERAGE; HIGHLY DEPENDENT ON STATE APPROPRIATIONS AS A REVENUE SOURCE

Moody's anticipates that UWF will continue to produce generally balanced operating performance as it has improved its operating margin in recent fiscal years after generating deeper operating deficits in previous years, as calculated by Moody's. UWF produced a Moody's calculated three-year average operating performance of negative 2.5% from FY 2007-FY 2009. Management budgets for breakeven and has reported small surpluses in its budget each year. In FY 2010, due to an increase in expenses for services and supplies, management expects to produce a weaker performance in FY 2010, but forecasts improved performance in FY 2011 from FY 2010. Moody's notes that its operating margin calculation includes the non-cash expense of depreciation which is the reason for the difference between the negative operating margin calculated by Moody's and the University's results. Operating cash flow remains slim but adequate at 5.5%, which, however, provides a strong three-year average pro-forma debt service coverage of 4.1 times from FY 2007-FY 2009. Moody's anticipates a thinner operating cash flow margin in FY 2010 due to an increase in noncapitalized expenditures for repair, renovation, and maintenance of capital assets.

The University derives more than half of its operating revenue, as calculated by Moody's, from government appropriations leaving the University vulnerable to state budget challenges. Despite historically strong state support for both operations and capital, budgetary pressures have caused reductions in state aid. In FY 2009, the University faced a 14% cut in state appropriations and a 12% cut in FY 2010. Based on unaudited FY 2010 financial figures, the impact of the reductions is somewhat offset by approximately $4.5 million in federal stimulus funds, which reduced the cut to 5% and several expense containment strategies focusing on consolidation of administrative support and increasing automation and energy efficiencies. To further compensate for the expectation of decreased state support, the State approved a 15% per year tuition increase in FY 2009. Historically, public universities in the state have been limited in terms of their ability to increase undergraduate tuition, and Moody's views these recent steps as a significant credit positive for Florida public universities that have healthy student demand.

In FY 2011, state appropriations are $89.4 million, without any stimulus funds. The University has conservative plans to meet potential state funding reductions and expects to maintain balanced operations. In addition to relying on the state for 52% of its operating revenue, UWF also receives revenue from tuition and fees of 32.1% (which includes Pell Grant revenue and State Student Financial Aid), grants and contracts of 10.9%, and the remaining 5% equally divided among gifts, investment income, and other revenues.

Moody's maintains an Aa1 rating with a stable outlook on the State of Florida. The State's Aa1 rating reflects Florida's history of conservative budgeting practices, large and diverse economy with strong tourist and retirement appeal, and negligible pension liability. Challenges include weakness in the state economy reflected in employment dislocations, an unemployment rate that exceeds national averages, job losses that exceed those for comparably rated states, and a weak housing market. These challenges could negatively impact the state's plans to restore reserves over the next few years. The confluence of negative economic trends impacting Florida is projected to result in three consecutive years of actual and projected declines in sales tax receipts through FY 2010, a pattern that was not a characteristic of prior recessionary periods. The national recession has hampered net migration to Florida, causing further strain to the state's economy, although overall population growth has still remained positive. For more information on Moody's ratings of Florida, please refer to our report dated September 27, 2010.

BALANCE SHEET POSITION: BALANCE SHEET RESOURCES PROVIDE SOLID COVERAGE FOR DEBT AND OPERATIONS

Moody's believes that UWF has a favorable balance sheet position with total financial resources growing 36% to $110.0 million from FY 2005 to FY 2009. FY 2009 coverage of expendable financial resources to pro-forma debt and operations is solid at 0.94 times and 0.52 times, respectively, relative to its A-rated public university peers.

The University is nearing the end of its capital campaign and has exceeded its $40 million goal by raising approximately $42 million. Of the $42 million raised, $18 million has been received in cash to date. The priorities of the campaign were to raise money for scholarships, educational initiatives, capital projects, and other initiatives. The campaign is scheduled to end in December, 2010.

In FY 2009, the University had $54.3 million of unrestricted monthly liquidity, which provides an adequate monthly days cash on hand of approximately 167 days. These liquid funds available within one month would cover almost six months of operating expenses. The median monthly days cash on hand for A1 public universities based on Moody's FY 2009 Medians was 119 days.

As of June 30, 2010, the University's investment market valuation, which is held at the Foundation was $50.9 million with $43.1 million of total investments allocated for the endowment. The investment portfolio is allocated 40.4% among domestic equities, 22.0% among hedge funds, 20.0% among fixed income assets, 14.6% among international equities, 2.0% among real estate, and 1.0% among private equity managers. The investment return for FYE 2010 was 11.4%. In FYE 2009, the Foundation's investment return on its endowment was a steep loss of 27.9%. The investments are managed by the Foundation's Investment Committee and the Foundation also utilizes an investment consultant. The Foundation has an extensive investment policy that includes the purpose of investing, target investments mix, and allocation ranges.

In December, 2010, UWF entered into an agreement with Branch Banking and Trust Company ("BB&T") to refund the Series 1998 Dormitory Revenue Bonds through issuing private placement bonds. Approximately $11.7 million of the proceeds will be used to refinance the Series 1998 Bonds and pay costs of issuance. The Series 2010 Bonds will be secured by Net Revenues of the Dormitory System an assignment of the Sublease from the UWF to the Foundation. The Series 2010 Bonds will be on parity with the current outstanding Dormitory Revenue Bonds. BB&T require the same Rate Covenant that Dormitory System Revenues in each Fiscal Year will be equal to all Operating Expenses of the Dormitory System for the Fiscal Year and the Net Revenues will be at least 1.20 times of the Debt Service Requirement.

The Series 2011 bonds will be used to construct a new suite style residence hall on UWF's campus that will have approximately 250 beds. The project is expected to open for the fall 2012 semester and will increase UWF's housing stock to 2,033 beds. The University has a number of housing options from traditional resident halls to apartment style complexes. In fall 2010, the University opened Heritage Hall, a 252 bed suite style resident hall, which the new residence hall associated with the Series 2010 Bonds will be modeled after. The University has a strong 98.8% occupancy rate for fall 2010. The additional housing is part of a larger strategic plan of the University to enhance the student's collegiate experience.

Outlook

The stable outlook reflects Moody's expectation that UWF will maintain a stable student market position, balanced operating performance, and maintain a favorable balance sheet profile. It also reflects expectation of manageable increases in debt and maintenance of healthy debt service coverage.

What Could Change the Rating - UP

Generation of positive operating performance and more robust cash flow; strengthening of balance sheet resources with little or no additional debt issuance; further diversification of its revenue base through less reliance on state appropriations and increases in net tuition revenue, as well as to continue to maintain a positive relationship with the state

What Could Change the Rating - DOWN

Sustained pressure on operating performance; declines in enrollment; sustained balance sheet deterioration; significant additional borrowing

KEY INDICATORS (FY 2009 financial data, fall 2009 enrollment data)

Total Full-Time Equivalent (FTE) Enrollment: 9,649 students

Pro-forma Direct Debt: $71.4 million

Total Financial Resources: $109.7 million

Expendable Financial Resources: $66.9 million

Total Revenues: $125.6 million

Monthly Liquidity: $53.3 million

Monthly Days Cash on Hand (unrestricted funds available within 1 month divided by operating expenses excluding depreciation, divided by 365 days): 166.5 days

Expendable Financial Resources to Pro-forma Direct Debt: 0.94 times

Expendable Financial Resources to Operations: 0.52 times

Three-Year Average Operating Margin: -3.1%

Average Debt Service Coverage: 4.05 times

Operating Reliance on Student Charges (% of total operating revenues): 32.1%

Operating Reliance on State Appropriations (% of total operating revenues): 51.8%

State of Florida General Obligation Rating: Aa1/Stable

RATED DEBT

Series 1997A and 2008A State University System Revenue Bonds: Aa2

Series 1998 and Series 2003A State University System Revenue Bonds: Aa2; insured by AMBAC Assurance

Series 2001 and Series 2006A State University System Revenue Bonds: Aa2; insured by FGIC

Series 2005 Dormitory Refunding Revenue Bonds: Aa2; insured by National Public Finance Guarantee Corp whose current financial strength is Baa1 (formerly MBIA Insurance Corporation)

Series 2005A State University System Revenue Bonds: Aa2; insured by National Public Finance Guarantee Corp whose current financial strength is Baa1 (formerly MBIA Insurance Corporation)

Series 2011 Dormitory Revenue Bonds: A2, insured by Assured Guaranty whose current financial strength rating is Aa3/negative

CONTACTS

University of West Florida: Mike Dieckmann, Vice President for University Affairs and CFO, (850) 474-2209

University of West Florida Foundation: Susan Stephenson, Executive Director, (850) 474-2487

Elizabeth Greene, Senior Managing Consultant, Public Financial Management, Inc., (305) 448-7362

METHODOLOGY AND LAST RATING ACTION

The principal methodology used in this rating was Public College and Universities published in November, 2006.

The last rating action with respect to the University of West Florida was on November 3, 2010 when an A1 issuer level rating and A2 debt rating with a stable outlook was assigned.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, confidential and proprietary Moody's Investors Service information, and confidential and proprietary Moody's Analytics information.

Moody's Investors Service considers the quality of information available on the credit satisfactory for the purposes of assigning a credit rating.

Moody's adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

Analysts

Erin V. Ortiz
Analyst
Public Finance Group
Moody's Investors Service

Dennis M. Gephardt
Backup Analyst
Public Finance Group
Moody's Investors Service

Contacts

Journalists: (212) 553-0376
Research Clients: (212) 553-1653


Moody's Investors Service
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MOODY'S ASSIGNS A2 RATING TO THE SERIES 2011 DORMITORY REVENUE BONDS AND AFFIRMS A1 ISSUER LEVEL RATING ON THE UNIVERSITY OF WEST FLORIDA; OUTLOOK IS STABLE
No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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