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21 Oct 2016
New York, October 21, 2016 -- Issue: Florida Atlantic University Dormitory Revenue Refunding Bonds, Series 2016A; Rating: A1; Rating Type: Underlying LT; Sale Amount: $50,545,000; Expected Sale Date: 10/31/2016; Rating Description: Revenue: Public University Limited Pledge;
Summary Rating Rationale
Moody's Investors Service has assigned an A1 rating to the proposed $50.5 million Series 2016A Florida Atlantic University Dormitory Revenue Refunding Bonds (2036 maturity) to be issued by the Division of Bond Finance on behalf of the Florida State Board of Governors. Moody's has also affirmed the A1 ratings on the dormitory system revenue bonds and the capital improvement housing revenue bonds and the Aa3 ratings on the parking facility revenue bonds. Total pro-forma rated debt is approximately $229 million. The outlook is stable for the university and for the various housing revenue bonds. We revised the outlook to negative from stable on the parking bonds.
The ratings reflect FAU's sound student demand as a large multi-campus regional comprehensive public university in a demographically vibrant state, solid financial reserves, and balanced operating performance. Challenges include volatile history of state funding with relatively high dependence on state aid and strong competition for students.
The A1 rating on the dormitory/housing bonds and capital improvement housing bonds incorporates the strategic importance of the university's residential program and more than adequate debt service coverage, as well as risks related to the revenue performance of the new housing systems and unique security features across various indentures.
The revision of the outlook to negative on the parking bond reflects volatility in debt service coverage, dropping to 1.4 times in FY 2015. The Aa3 rating on the limited pledge bonds incorporates the inclusion of mandatory student fee, solid and growing reserves of approximately $13 million for use within the parking system, and the project's essentiality to the university.
The stable outlook on the housing-related bonds is based on the expectation that the university will maintain sound student demand, operating performance, and balance sheet reserves. The outlook is also predicated on the expectation that the pledged revenues will continue to more than adequately cover debt service. The negative outlook on the parking bonds reflects declining debt service coverage from pledged revenues as gross revenues declined and expenses increased between FY 2013 to FY 2015.
Factors that Could Lead to an Upgrade
Strengthened student market profile outside its core region evidenced by consistently stronger growth of student charges
Substantial and sustained growth of financial reserves
Stronger operating cash flow performance
Factors that Could Lead to a Downgrade
Deterioration of operating reserves
Declines in operating revenue
Weakening of debt service coverage from pledged revenues for housing bonds; inability to materially improve coverage for the parking bonds
The Series 2003, 2006A, 2006B, and 2016A dormitory bonds issued through the Division of Bond Finance are secured by the net revenues of the housing system. The bonds have a surety-funded debt service reserve fund. At FYE 2015, debt service coverage and maximum annual debt service were both at 1.3 times and improved to 1.5 times based on unaudited FY 2016 financials.
The Series 2010A Capital Improvement Revenue housing bonds are secured by the gross revenue of the Innovation Village housing facilities, net revenue of the DBF housing facilities, and the Build America Bonds (BABs) direct pay subsidies. The bonds are further secured by a cash funded debt service reserve fund equal to maximum annual debt service. At FYE 2016, debt service coverage from pledged revenue was 1.6 times.
The Series 2012A Capital Improvement Revenue Bonds are secured by and payable from pledged revenues, which are comprised of the housing system revenues, net of amounts needed to pay operating expenses, excess housing revenues from the housing facilities financed with DBF bonds and the Finance Corp.'s Series 2010 bonds, and moneys on deposit in the funds and accounts and investment earnings. The Series 2012A bonds are secured by a cash funded debt service reserve fund. The Series 2012A bonds were issued under a new indenture, which was necessary to modify the additional bonds test in the 2010 indenture. The 2010 indenture has been closed. At FYE 2016, debt service coverage from pledged revenue was 3.0 times.
The parking bonds are secured by and payable from pledged revenues, consisting of the revenues of the parking system, after payment of current expenses, administrative expenses, and, if necessary, the rebate amount. At FYE 2016, debt service coverage from pledged revenue was 1.5 times.
Use of Proceeds
Proceeds of the Series 2016A bonds is expected to be used to refinance all of the outstanding Series 2003, 2006A, and 2006B bonds and to pay certain issuance costs.
Florida Atlantic University is a comprehensive public university located in Boca Raton, Florida, with five satellite campuses located across south Florida and is a member of the 12-campus State University System of Florida. FAU is designated as a Hispanic Serving Institution. The university opened in 1964.
The principal methodology used in this rating was Global Higher Education published in November 2015. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
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