Fitch Rates IL Finance Auth's $45MM Univ Center Rfdg Bonds 'BBB'; Outlook to Stable.

NEW YORK -- Fitch Ratings assigns a 'BBB' rating to the Illinois Finance Authority's $45 million student housing revenue refunding bonds, Educational Advancement Fund, Inc. (EAF) (University Center project), series 2006. Fitch also affirms the 'BBB' rating on the outstanding series 2002 bonds. The bonds are scheduled to sell on or about Aug. 2 via a negotiated sale led by Lehman Brothers. The Rating Outlook is revised to Stable from Negative. Bond proceeds will be used to refund the series 2002 term bonds due in 2034.

The change in the Rating Outlook is attributed to fiscal 2006 operating performance, which is expected to meet the original projections when the initial rating was assigned and to cover debt service by 1.31 times (x). The rate covenant is 1.25x.

The University Center in Chicago, which was financed with the series 2002 bond proceeds, is a 1,720 bed student residence facility that houses students from Columbia College Chicago, DePaul University and Roosevelt University. The facility opened Aug. 1, 2004 and will complete its second full year of operations by July 31, 2006.

The 'BBB' rating is supported by high occupancy rates, stable enrollment at the three institutions and flexibility to allot rooms amongst the three institutions. Fall 2005 and Spring 2006 occupancy rates were 98.9% and 94.8% respectively. The occupancy rates are expected to remain high for Fall 2006; however, more students from Columbia College will fill the facility than in the prior fall term. Since the original agreement for the allotment of rooms prior to the opening of the facility; DePaul's allotment has decreased to 30.5% from 40.7%, Roosevelt's allotment has increased to 22.0% from 18.7%, and Columbia's allotment has increased to 47.5% from 40.6%. When an institution agrees to be allotted a certain number of rooms each year, it agrees to pay for the rooms at the annual room rate. Although room allotment may shift from year to year between institutions, Fitch believes that it is reasonable to assume that all rooms will be taken each year in part due to the relative stability of student enrollment at each institution. For fall 2005, student enrollments at Columbia, DePaul and Roosevelt were 10,144, 23,023 and 7,173 respectively.

Prior to the facility's opening, the three institutions agreed to provide financial support sufficient to cover debt service by 1.0x for the fiscal 2005, the first year of operations. For fiscal 2006, the institutions agreed to provide financial support, if necessary, to cover debt service by 1.25x. Fiscal year 2006 ends July 31, and it is projected that revenues of nearly $19.7 million and operating expenses of $7 million will provide net revenues of $12.7 million which will cover debt service by 1.31x. The budget for fiscal 2007 projects debt service coverage of 1.29x. As a result of the solid coverage in fiscal 2006, the institutions did not execute a support agreement for fiscal 2007.

The primary credit concerns are the lack of revenue diversity, a high debt burden and limited liquidity. Approximately 87% of the facility's revenues were derived from room rentals and approximately 49% of those revenues are needed to cover annual debt service. To sustain room rental revenues, maintenance of current occupancy levels is critical. Any significant decrease in occupancy levels would have a negative impact on the rating. Due to the short two year operating history, significant reserves, which would serve as a buffer if occupancy levels were to decline, have not accumulated. At the end of fiscal 2005, cash and investments were $1.5 million.

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