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

Fitch Ratings affirms its unenhanced 'AA-' rating on approximately $56.4 million of outstanding housing revenue bonds issued by the State of Florida Board of Regents, Florida Education System, on behalf of the University of Florida (UF, or the university). The bonds are secured by the pledged net revenues derived from the operations of UF's housing system. The Rating Outlook is Stable.

The 'AA-' rating is supported by the strong operating performance and strong debt service coverage generated by the university's housing system, and UF's prominent position as the state's flagship public university. Demand for housing remains strong, demonstrated by a track record of 100% occupancy, and maintenance of a significant waiting list. Credit concerns include the housing system's high debt burden. Fitch continues to monitor the potential impact of funding reductions from the state of Florida on UF's credit profile. To date, such reductions, which have been minimal, have not materially impacted UF'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 very strong historically, averaging 25.6% over the past five fiscal years. For fiscal 2008, the operating margin was 30.9%, reflective of gross revenues of $40 million and net operating income of $12.4 million. Approximately 97% of the housing system's revenues are derived from residence hall rents. For fall 2008, the average room charge was $3,916, a 3.4% increase from fall 2007. In addition, annual board charges were $3,030. For fiscal 2008, the housing system's pledged revenues totaled $13.7 million, resulting in a healthy 2.8 times debt service coverage ratio. However, the housing system's debt burden remains high, with maximum annual debt service of approximately $4.9 million representing 12.2% of fiscal 2008 operating revenues.

The housing system's liquidity is adequate. Available funds, defined by Fitch as unrestricted and temporarily restricted cash and investments, totaled $20.2 million as of June 30, 2008, and covered operating expenses of $27.6 million and total debt of $57.6 million by 72.9% and 35%, respectively.

UF is the oldest and largest of the 11 institutions of public higher education in the State University System of Florida (currently rated 'AA' by Fitch). Fall 2008 headcount enrollment was 52,112. On average, enrollment at UF grew a modest 1.7% annually over the past five years, with undergraduate enrollment having been intentionally maintained at a relatively constant level. The majority of students are located at UF's main 2,000-acre campus in Gainesville, Florida.

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