INITIAL RATING FOR UNIVERSITY WITH $26 MILLION OF PRO FORMA RATED DEBT INCLUDING UNIVERSITY SYSTEM BONDS
Florida State Board of Governors
Mandatory Student Fee Revenue Bonds 2010A, Tax-Exempt Bonds
Expected Sale Date
Public University Revenue
Mandatory Student Fee Revenue Bonds Series 2010B Build America Bonds (Federally Taxable-Issuer Subsidy)
Expected Sale Date
Public University Revenue
NEW YORK, Dec 8, 2010 -- Moody's Investors Service has assigned an A2 rating to the University of North
Florida's ("UNF" or the "University") Series 2010A and
2010B Mandatory Student Fee Revenue Bonds to be issued through the Board
of Governors of the State of Florida. This is an initial rating for the
University. The rating outlook is stable. The Board has designated the Taxable
Series 2010B Bonds as Build America Bonds and expects to receive a 35% interest
payment subsidy from the federal government.
RATINGS RATIONALE: The A2 debt rating with a stable outlook reflects the
University's stable market position in northeast Florida, healthy financial
reserves, and expectation of continued solid debt service coverage from
USE OF PROCEEDS: Proceeds will be used to pay construction costs of a Student
Wellness Center as well as to pay the cost of issuance.
LEGAL SECURITY: The Mandatory Student Fee Revenue Bonds, Series 2010 are secured
by and payable from a mandatory Student Health Fee charged to all students, plus
investment earnings on the Fee amounts. Pledge Revenues totaled $2.5 million in
FY 2010 and are expected to increase given an increase in the fee to $9.51 per
credit hour (beginning fall 2010) from $6.17 per credit hour in FY 2010.
Projected pledged revenues in FY 2011 cover maximum annual debt service 2.9
times without giving any benefit for the expected Build America Bond rebate.
There is not a debt service reserve fund requirement. The documents call for a
sum sufficient rate maintenance covenant. The additional bonds test requires
that the preceding two fiscal years of pledged revenues were greater than
or equal to 120% of pro forma maximum annual debt service.
DEBT-RELATED INTEREST RATE DERIVATIVES: None associated with University debt.
*Stable market position as a mid-sized public university located in
Jacksonville, Florida. UNF has been experiencing measured enrollment growth,
enrolling 14,068 full-time equivalent (FTE) students in fall 2010, which was a
3% increase from fall 2006. Demographics for the region and state should
continue to support growth for the University. Market demand should
support sustained increases in net tuition per student as tuition prices are
expected to increase 15% per year. Moody's adjusted net tuition per student of
$4,357 in FY 2010 grew 11.6% from the prior year.
*Favorable balance sheet position with total financial resources of $148 million
based on draft FY 2010 financials, of which $51 million of that is unrestricted
resources of the University. FY 2010 expendable financial resources of $81
million cushion pro-forma debt and operations 0.5 times and 0.4 times,
respectively. State capital support which has continued in the recent recession
should help limit the University's need to borrow over the long term.
*Generally balanced operating performance with Moody's adjusted
three-year average margin of -0.3% with an average cash flow margin of 9.8%
supporting comprehensive debt service coverage 3.5 times in FY 2008 through FY
*State operating appropriations represent a high proportion of Moody's adjusted
operating revenues - 41% of UNF's operating revenue in FY 2010 - and are likely
to remain pressured over the medium term. In FY 2009, the University faced a 16%
cut in General Revenue appropriations.
*With recent investments in residence and other student life facilities the
University has somewhat higher than typical operating leverage with pro forma
debt to revenue of 84%. In addition, UNF has $8.6 million of variable rate
demand debt backed by a Wells Fargo LOC, offset by healthy monthly liquidity
which covers the demand debt by 735%.
*Relatively aggressive use of alternative investments at the University of North
Florida Foundation for an endowment with a $68 million market value. As of June
30, 2010 the allocation was 9.6% domestic equity, 11.1% international
equity, 11.3% global opportunistic strategies, 12.3% absolute return, 17.4%
private equity, 3.7% real estate, 9.5% energy/natural resources, 14.5% enhanced
fixed income, 0.9% traditional fixed income and 9.6% cash. After a 28.3% loss in
FY 2009, the endowment had a 9.1% return in FY 2010.
MARKET POSITION/COMPETITIVE STRATEGY: MID-SIZED PUBLIC UNIVERSITY WITH SOLID
Moody's expects that UNF, a public university located in Jacksonville, 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 affordable tuition pricing. UNF is a mid-sized university
that opened in 1972 as an upper division and master's degree granting
institution. Fall 2010 total full-time equivalent enrollment (FTE) was 14,068,
with 9% of total FTE enrolled in graduate level study. Moody's also
believes that UNF has a good market position as one of 11 public higher
education institutions in the state and the only state university located in
northeast Florida. UNF competes primarily with public universities in
Florida such as Florida State University, Florida State College, University of
West Florida, University of Central Florida, Florida Gulf Coast University, and
University of Florida.
The University largely serves an undergraduate student population (91% of total
FTE enrollment in fall 2010.) The regional university enrolled 49% of its
student population from Duval County, with an additional 23% from Northeast
Florida. In fall 2009, 5% of students came from outside of Florida. Transfer
students remain an important source of students as UNF has strong
articulation agreements to improve access for students planning to transfer to a
four-year institution, such as UNF, after completing degree requirements from an
in-state public two-year college. In fall 2010, for example,
first-time-in-college enrolled students of 1,138 were almost matched by
community college transfers of 1,104.
Public university tuition rates in Florida for resident students are among the
lowest in the nation with in-state undergraduate students paying around $4,525
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. Moody's believes that in-state tuition rates will remain
OPERATING PERFORMANCE: GENERALLY BALANCED OPERATING PERFORMANCE WITH STRONG DEBT
SERVICE COVERAGE; RELATIVELY DEPENDENT ON STATE APPROPRIATIONS AS A REVENUE
Moody's anticipates that UNF will continue to generate balanced
operating performance as calculated by Moody's. UNF produced a Moody's
calculated three-year average operating performance of negative 0.3% from FY
2008 through 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 breakeven results. Operating cash flow has averaged 9.8% supporting
3.5 times comprehensive debt service coverage across that same period.
Based on unaudited results for FY 2010 the University derived 41% 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 16% cut in General Revenue appropriations that edged upward in FY 2010. Based
on unaudited FY 2010 financial figures, the impact of the reductions is somewhat
offset by approximately $5.8 million it received in federal stimulus
funds, which mitigated the impact of the cut. The University also
implemented several expense containment strategies. 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, budgeted education and general state appropriations are $76 million,
with additional stimulus funds expected to be $5.6 million. The University has
conservative plans to meet state funding pressure and expects to maintain
balanced operations. In addition to relying on the state for 41% of its
operating revenue, UNF also receives revenue from tuition and fees of 46% (which
includes Pell Grant revenue and State Student Financial Aid), grants and
contracts of 6%, and the remaining 7% 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
Moody's believes that UNF has a favorable balance sheet position with total
financial resources of $152 million at FYE 2010 (based on unaudited financials)
of which $51 million of that amount is unrestricted. Expendable financial
resources of $81 million cushion pro forma debt and operations 0.5 times and 0.4
times, respectively. In FY 2009, the University had $66 million of
unrestricted monthly liquidity, which provides an adequate monthly days cash on
hand of approximately 139 days. The median monthly days cash on hand for A1
public universities based on Moody's FY 2009 Medians was 119 days.
The University and its affiliated Foundation completed a comprehensive campaign
in 2003, having raised $103 million on a $65 million goal. In the spring of 2009
it launched a new $110 million campaign. In FY 2010 Foundation gifts and pledges
totaled $6.2 million, in line with the FY 2009 results.
Moody's believes that for an endowment of its size the University of
North Florida Foundation has a relatively large allocation to alternative
and less liquid assets. The pooled fund ended FY 2010 with a $68 million market
value. As of June 30, 2010 the allocation was 9.6% domestic equity, 11.1%
international equity, 11.3% global opportunistic strategies, 12.3% absolute
return, 17.4% private equity, 3.7% real estate, 9.5% energy/natural resources,
14.5% enhanced fixed income, 0.9% traditional fixed income and 9.6% cash. After
a 28.3% loss in FY 2009, the endowment had a positive 9.1% return in FY 2010.
The University has no near term borrowing plans and has continued to
receive notable state capital support for academic buildings and
infrastructure. Current state Public Education Capital Outlay, or PECO, funds is
providing support for a $40.5 million Science & Humanities Building. Over
the longer term UNF seeks to provide housing for 18% of its students and with
the recently completed addition to its housing stock is now near 17%, so
additional housing needs given that goal would come with enrollment growth over
The stable outlook reflects Moody's expectation that UNF will maintain a stable
student market position, balanced to improved operating performance, and a
favorable balance sheet profile along with manageable increases in debt.
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
What Could Change the Rating - DOWN
Sustained pressure on operating performance; declines in enrollment; sustained
balance sheet deterioration; significant additional borrowing beyond the current
KEY INDICATORS (FY 2010 preliminary, unaudited financial data, fall 2010
Total Full-Time Equivalent (FTE) Enrollment: 14,068 students
Pro-forma Direct Debt: $164 million (including UNF's portion of State University
System Revenue Bonds)
Total Financial Resources: $152 million
Expendable Financial Resources: $81 million
Total Revenues: $195 million
Monthly Liquidity: $66 million
Monthly Days Cash on Hand (unrestricted funds available within 1 month divided
by operating expenses excluding depreciation, divided by 365 days): 139 days
Expendable Financial Resources to Pro-forma Direct Debt: 0.5 times
Expendable Financial Resources to Operations: 0.4 times
Three-Year Average Operating Margin: -0.3%
Average Debt Service Coverage: 3.5 times
Operating Reliance on Student Charges (% of total operating revenues): 45.7%
Operating Reliance on State Appropriations (% of total operating revenues):
State of Florida General Obligation Rating: Aa1/Stable
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 2007 State University System Revenue Bonds: Aa2; insured by FGIC
Series 2005A State University System Revenue Bonds: Aa2; insured by MBIA
Series 2010A and 2010B Mandatory Student Fee Revenue Bonds: A2
J. Timothy Tinsley, State of Florida Division of Bond Finance, 850-488-4782
The principal methodology used in this rating was Public College and
Universities published in November 2006.
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.
Dennis M. Gephardt
Public Finance Group
Moody's Investors Service
Erin V. Ortiz
Public Finance Group
Moody's Investors Service
Journalists: (212) 553-0376
Research Clients: (212) 553-1653
MOODY'S ASSIGNS A2 RATING TO UNIVERSITY OF NORTH FLORIDA'S $15.6 MILLION SERIES 2010 MANDATORY STUDENT FEE REVENUE BONDS; OUTLOOK IS STABLE
Moody's Investors Service
250 Greenwich Street
New York, NY 10007