Fitch Rates Florida Atlantic University 2006B Dormitory Rev Rfdg Bnds 'A'.

NEW YORK -- Fitch assigns its underlying 'A' rating to Florida Board of Governors $21.6 million Florida Atlantic University (FAU or the university) dormitory revenue refunding bonds, series 2006B. In addition, Fitch affirms the underlying 'A' ratings on $62.5 million of housing system revenue bonds, series 2000, 2003 and 2006A. The Outlook is Stable.

Series 2006B bond proceeds will be used refund a portion of the series 2000 bonds and pay costs of issuance. The bonds are secured by net pledged revenues of the housing system. The bonds are expected to be insured and sell competitively on 18 hour notice beginning October 3, 2006 by the Florida Division of Bond Finance.

The 'A' rating on FAU's housing system bonds is supported by the financial viability and adequate debt service coverage generated by the integral and self-supporting housing system, strong student demand, and FAU's credit profile. For the fall 2006 semester, the system's 1,918 beds housed over 15% of the campus's 12,535 full-time equivalent (FTE) enrollment (84% of FAU's total students). The housing system has a long track record of over 97% occupancy, strong double-digit operating margins, debt service coverage averaging over 1.3 times (x) for the last five years, and a 99% fee collection rate. Unaudited 2006 financial results reflect gross revenues of $10.2 million and an operating surplus of $1 million net of administrative overhead and interest and depreciation expenses. Available cash and investments of $9 million is equivalent to 99% of fiscal 2006 operating expenses. Based on Fitch's computation, FAU's actual and MADS debt service coverage equals 1.15x. In accordance with the bond documents, pledged revenues, net of current expenses, totaled $5.1 million and produced annual debt service coverage of over 1.2x. Debt service coverage declined from fiscal 2005 due to higher utility and repair costs and lower supplemental revenues.

FAU's preliminary fall 2006 headcount enrollment of 25,750 is slightly down from fall 2005 levels and up 8.1% since fall 2001. Fall 2006 headcount is 6% below prior projections, and management now projects a 14% enrollment increase over the next five years. While this target may be optimistic, Fitch believes that FAU's prospects for growth are reasonable given the state's projected growth in the number of high school graduates, and strategic initiatives to grow and diversify enrollment (FAU's enrollment is heavily weighted toward in-state undergraduate students).

FAU's credit profile includes strong revenue growth for three of the last four fiscal years, operating losses due in part to high levels of student financial aid, significant net asset growth, limited liquidity, and low debt burden. Unaudited fiscal 2006 results reflect operating revenues of $408.6 million and an operating deficit of ($2.2) million. The deficit is down from fiscal 2005's ($23.7) million operating loss. The fiscal 2005 loss was exacerbated by the incurrence of expenses eligible for capitalization and related to prior year grant revenues, a divisional upgrade for its athletics program, and additional student scholarships. Management expects performance to improve aided by an estimated 13% increase in state appropriations for 2007. Despite operating losses, FAU's net assets increased in each fiscal year with the cumulative receipt of $258 million of Public Education Capital Outlays (PECO) and other capital appropriations.

Available funds (cash and investments that are unrestricted) totaled $61.8 million as of June 30, 2006, and covered 47% of pro forma debt and 14% of operating expenses. The available funds to expense ratio is below Fitch's median for 'A' rated public universities. While liquidity is down from fiscal 2005, it is offset by a higher receivable from the State. Over 37% of FAU's operating revenues comes from state appropriations and alleviates the need for significant cash reserves (the state's GO bonds are rated 'AA+' by Fitch). FAU's legally separate foundation holds a $180 million endowment, and FAU plans to launch a capital campaign in the near term to help support scholarships and student financial aid. FAU's pro forma outstanding debt will total $131.5 million, following the recent incurrence of additional capital leases. MADS for all of FAU's direct debt and non-cancelable operating leases will be approximately $9.8 million and would consume only 2.4% of fiscal 2006's revenues. Due to the improved fiscal 2006 operating performance, pro forma MADS coverage exceeds 2.1x.

In addition to weak historical operating results and liquidity, credit risks include a lack of geographic enrollment diversity, and increased competition for state funding. Frequent changes in financial reporting have limited comparability between fiscal years. However, Fitch believes that the University's fiscal 2006 operating rebound is sustainable.

FAU operates seven campuses and 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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