Fitch Downgrades Nova Southeastern University, Florida's Revs to 'BBB'; Outlook Stable

NEW YORK--(Business Wire)--
Fitch Ratings has downgraded its rating on approximately $180 million of
outstanding educational facilities revenue bonds issued by the Broward County
Educational Facilities Authority on behalf of Nova Southeastern University (the
university) to 'BBB' from 'BBB+'.

The bonds are a general obligation of the university. Also included in Fitch's
credit analysis, but not rated by Fitch, were the university's outstanding
variable-rate demand bonds (VRDBs) (approximately $109 million and supported by
various direct-pay letters of credit [LOCs]), and $60 million series 2009
revenue bonds expected to be issued by the town of Davie on behalf of the
university on or about May 29, 2009 and will be privately placed. The Rating
Outlook is Stable.

The downgrade is supported by the university's significant loss of liquidity,
narrowing financial performance, and substantial increase in debt. Despite the
university's reduced operations, its operating margin remains positive and
enrollment is currently stable and growing. In fiscal 2008, the university's
available funds (a measurement of liquidity, calculated as a sum of unrestricted
and temporarily restricted cash and investments) totaled $118.5 million, down
27.7% from fiscal 2007. For the nine-month period ending March 31, 2009, these
financial resources reflected an additional 31% reduction. The declines are
attributable to investment losses, lower operating surpluses, ongoing capital
spending, and increased debt levels. In fiscal 2008, available funds represented
24.3% of total proforma long-term debt ($406.3 million) and 29.2% of
unrestricted operating expenses ($488.3 million).

Acknowledging that the university is not dependent upon its investments for
operations, this decline represents a significant reduction of the university's
financial flexibility as liquidity provides an institution the capacity to
manage potential operational disruptions, and/or the time to remedy unplanned
credit events. Fitch understands that the university plans to use the proceeds
of the series 2009 bonds to reimburse itself for capital expenditures; however,
further declines in liquidity and/or a continued softening in operations will
pressure the university's rating and/or Rating Outlook.

Although the university has a history of positive financial performance, its
operating margin tightened to 4.3% in fiscal 2008 from 6.6% in fiscal 2005 as
expense growth rates exceeded revenue increases. The university expects fiscal
2009 operations to be comparable to fiscal 2008. The university is dependent
upon student-generated revenues, which represented 86.5% of unrestricted
revenues in fiscal 2008. This percentage may rise in fiscal 2009 due to expected
reductions in the university's investment income as well as gifts and
contributions. The university's enrollment continues to grow moderately. In fall
2008, the university had a headcount enrollment of 28,378, an increase of 3.7%
over fall 2007; full time equivalent enrollment was 22,665. Unlike the other
colleges and universities in the state, the university is principally a graduate
institution; only 20% of the university's fall 2008 students were
undergraduates.

While the university's debt burden remains manageable, its debt levels have
increased appreciably while its debt profile has become increasingly exposed to
the risks associated with variable-rate obligations (currently representing 30%
of total bond debt). With the issuance of the series 2009 bonds, the
university's total long-term debt (including approximately $45 million of
non-cancelable operating leases and other obligations) will have increased 43%
to $406.3 million since the fiscal year ended June 30, 2008. Approximately $43
million of its VRDBs have LOCs expiring in April 2010 and the university is
currently negotiating a remedy for approximately $2.5 million of bank bonds.
Fitch will monitor this aspect of the credit closely. Proforma consolidated bond
debt service is projected to be relatively flat through fiscal 2039, with
maximum annual debt service (MADS) of $26.5 million occurring in fiscal 2013.
Inclusive of approximately $8.8 million of non-cancelable operating lease
payments, MADS would consume a slightly above average 6.9% of fiscal 2008
revenues. Although the university does not plan to access the capital markets
for new money bonds in the next two years, it is expected the university will
align its capital spending and any future debt issuance with available
resources.

Nova Southeastern University is a private, coeducational institution founded in
1964 as Nova University. In 1994, Nova University and Southeastern University of
Health Sciences merged to form today's university. The largest independent
institution of higher education in Florida, the university's main campus is
located on 300 acres in Ft. Lauderdale, FL and offers programs in seven
locations throughout the state, 23 locations outside the state, and eight
foreign countries.

Fitch's rating definitions and the terms of use of such ratings are available on
the agency's public site, 'www.fitchratings.com'. Published ratings, criteria
and methodologies are available from this site, at all times. Fitch's code of
conduct, confidentiality, conflicts of interest, affiliate firewall, compliance
and other relevant policies and procedures are also available from the 'Code of
Conduct' section of this site.

Fitch Ratings, New York
Mary Catherine Messner, CFA, FRM, +1-212-908-0738
Douglas J. Kilcommons, +1-212-908-0740
Media Relations:
Cindy Stoller, +1-212-908-0526
cindy.stoller@fitchratings.com

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