TEXT-Fitch rates FSU Financial Assistance Inc, Fla. revs 'A'
Sept 21 - Fitch Ratings assigns an 'A' rating to $15.65 million of educational, including athletic, facilities improvement revenue bonds, series 2012C issued by FSU Financial Assistance, Inc. (FSUFA). The bonds are expected to sell via negotiation the week of Oct. 1. Proceeds will be used to finance construction of a multi-purpose indoor athletic facility and to pay costs of issuance. In addition, Fitch affirms the 'A' rating on the following series of educational, including athletic, facilities improvement revenue refunding bonds issued by FSUFA: --$35.6 million series 2012A; --$5.9 million series 2012B (taxable). The Rating Outlook is Stable. SECURITY Full faith and credit of FSUFA, secured by and payable from pledged revenues that include conference facility revenues, license fees, university athletic department rent, trademark revenues and net ticket sales. In addition, a debt service guaranty is provided by the Seminole Boosters (the Boosters). KEY RATING DRIVERS STABLE CREDIT CHARACTERISTICS: The 'A' rating reflects the overarching ties between FSUFA and Florida State University (FSU), in conjunction with the general credit attributes of FSU. Components of pledged revenues are derived from FSU, and total pledged revenues have historically provided solid debt service coverage. Counterbalancing factors include the non-essential nature of the revenue pledge; a high debt burden; and the limited assets of the guarantor, the Boosters. INSTITUTIONAL ALIGNMENT: FSUFA plays an integral role in the overall operations of FSU through its financings of athletic program needs. FSUFA is a component unit of the Boosters, a separate 501(c)3 direct-support organization (DSO) of FSU. ADEQUATE DEBT SERVICE COVERAGE: Pledged revenues, while largely derived from discretionary sources, historically provided relatively strong debt service coverage. In addition, two of the components of the revenue pledge are paid by FSU, and these revenue streams (ticket sales and athletic department rent) alone provide 1.25x pro forma maximum annual debt service (MADS) coverage. HIGH DEBT BURDEN: The Boosters continue to operate with a high debt burden. Total pro forma MADS (approximately $5.8 million) represents nearly 22% of fiscal 2012 operating revenues (unaudited). However, Fitch notes that a high debt burden is in line with similar DSOs and other university auxiliary enterprises. CREDIT PROFILE As a DSO, the Boosters (including FSUFA) play a crucial role in providing financial support to FSU's athletic department with regard to programs, scholarships, and capital needs. Fitch notes the importance of athletics at the university due to its impact on financial resources, student demand, and development. In addition, the close, collaborative relationship between the Boosters and FSU, which Fitch views favorably, is reflected in the Boosters' governance structure, in which its board and management team are represented by individuals that overlap the two organizations. The revenues pledged to FSUFA's revenue bonds continue to provide healthy coverage of related debt service. On an unaudited basis, fiscal 2012 pledged revenues totaled $12.22 million, up from $11.72 million in fiscal 2011, and would cover pro forma MADS ($5.47 million) by a solid 2.23x. As noted above, a portion of pledged revenues are sourced directly from FSU's athletic department via athletic facility rent and net ticket sales. In Fitch's view, this provides a stable and predictable source of funds to the basket of pledged revenues. These funds alone, which total $6.85 million, cover pro forma MADS by an adequate 1.25x. Similar to other DSOs or university auxiliary enterprise operations, the Boosters maintain a high pro forma debt burden. Total pro forma MADS of about $6 million includes the series 2012C bonds as well as an approximate $6.4 million separately secured mortgage loan the Boosters intend to incur later this calendar year to partially fund a new student-athlete housing facility, which is expected to be self-supporting. Fitch's concern over the high debt burden is partly offset by the strength and stability of the revenues pledged to FSUFA-related debt service. In addition to the new housing facility, the Boosters have two projects in the early planning stage, although there are no definitive timing or financing plans at this time. The projects include renovations and improvements to FSU's football stadium ($10 million estimated cost) and basketball arena ($5 million estimated cost). Fitch will continue to monitor the Boosters' capital financing needs, but notes that any material increase in debt without a corresponding increase in resources available for its repayment could yield negative rating pressure. However, management maintains conservative capital budgeting practices, requiring certain projects to generate revenues sufficient to cover any associated debt service. FSU is one of the oldest and largest of the 11 institutions of higher education in the University System of Florida (revenue bonds rated 'AA' by Fitch). The university's strong financial profile is anchored by consistently positive operations, fairly diverse revenues, strong fundraising ability, a low debt burden, and solid balance sheet liquidity. While fall 2012 enrollment figures are not yet finalized, the university expects headcount to remain flat or slightly above the fall 2011 level of more than 41,000 students.
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