Fitch Affirms University of Central Florida's Housing Revs at 'A-'; Outlook Stable

Fitch Ratings affirms its unenhanced 'A-' rating on approximately $80.1 million of outstanding housing facility revenue bonds issued by the Florida Board of Education and Florida Board of Governors, on behalf of the University of Central Florida (UCF). The bonds are secured by the pledged net revenues derived from the operations of UCF's housing system. The Rating Outlook is Stable.

The 'A-' rating is supported by the strong operating performance and solid debt service coverage generated by the housing system; and growing enrollment at UCF, which supports demand for the housing facilities. Demand for housing remains strong, demonstrated by a track record of 100% occupancy and maintenance of a significant waiting list. Primary credit concerns include the housing system's high debt burden; and ongoing capital needs to accommodate enrollment growth, including the potential for an additional debt financed housing facility in fiscal 2010. Should UCF successfully manage the implementation of this project, while at the same time maintaining the housing system's strong operating performance and debt service coverage, upward rating movement is possible. Fitch continues to monitor the potential impact of funding reductions from the state of Florida on UCF's credit profile. To date, such reductions, which have been minimal, have not materially impacted UCF's enrollment levels or financial performance. Fitch will continue to monitor this aspect of the credit going forward.

The housing system's operating margin has been strong historically and has averaged 12.1% over the past five fiscal years. For fiscal 2008, the operating margin was 13.6%, reflective of gross revenues of $21.3 million and net operating income of $2.9 million. Approximately 95% of the housing system's revenues are derived from room rentals and other charges, with approximately 5% generated by investment income. For fiscal 2008, the housing system's pledged revenues totaled $9.9 million, resulting in a solid 1.52 times (x) debt service coverage ratio. However, the housing system's debt burden remains high, with maximum annual debt service of approximately $6.7 million representing 31.3% of fiscal 2008 revenues.

The housing system's liquidity is limited, although this is not atypical of a university auxiliary housing system. Available funds, defined by Fitch as unrestricted and temporarily restricted cash and investments, totaled $7.2 million as of June 30, 2008, and covered operating expenses of $18.4 million and total debt of $80.1 million by a low 39.3% and 9%, respectively.

Enrollment growth at UCF has made the housing system essential to its ability to provide for the ongoing needs of its students. Fall 2008 headcount enrollment was 50,275, up 3.2% from fall 2007. The majority of students are located at UCF's main campus in Orlando, Florida. UCF is one of 11 institutions of public higher education in the State University System of Florida (currently rated 'AA' by Fitch).

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