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Fitch Rates University of Florida's Parking Facility Revs Series 2018A 'AA-'; Outlook Stable.

New York: Fitch Ratings has assigned an initial 'AA-' rating on approximately $39.6 million of parking facility revenue bonds, Series 2018A, issued by the State of Florida Board of Governors (BoG) on behalf of the University of Florida (UF).

The fixed-rate series 2018A are expected to sell via competitive sale as early as the week of Aug. 27th. The bond proceeds will be used largely to finance the construction of a new parking garage on the main UF campus in Gainesville, FL. and to fully refund all of the systems outstanding parking revenue bonds, series 2007A, and to pay costs of issuance.

The Rating Outlook is Stable.

SECURITY

Parking facility revenue bonds are secured by the net revenues of UF's parking system (the system), and include decal fees, parking fines, toll and metered parking fees and special event fees but exclude the mandatory student transportation access fee (TAF) charged to each student. The pledged revenues are the parking system revenues, after deducting certain current and administrative expenses.

KEY RATING DRIVERS

ADEQUATE PRO FORMA COVERAGE: The 'AA-' rating reflects sound legal coverage of 2.65x annual debt service in fiscal 2017 and net coverage is slim but adequate at 1.7x pro forma maximum annual debt service (MADS), including the series 2018A bonds. The system has limited capacity at the current rating level to support additional debt, though none is planned at this time. Pro forma MADS is a high 13.8% of total operating revenues in fiscal 2017.

LIMITED REVENUE PLEDGE: UF's net revenue pledge excludes the TAF revenues, which generates about 47% of the system's total annual receipts in fiscal 2017. The decal fees, which generate 35% of total system revenues provide some stability to pledged revenues; however, future decal fee increases approved over a four-year period are limited to non-students, mainly faculty, staff and visitors.

STRONG ENROLLMENT BASE: UF's large and stable enrollment base ensures ample demand for parking facilities and supports the system's ability to adequately service debt and maintain sound financial performance.

UF'S CREDIT STRENGTH: Although the university's resources are not pledged, the parking facility bonds benefit from UF's strong demand and enrollment, generally positive operating performance, diverse revenue streams, healthy balance sheet and very low debt burden.

RATING SENSITIVITIES

WEAKENED COVERAGE: Fitch expects the UF parking system's annual debt service coverage, from pledged net revenues to remain at least 2x or better, post the current debt issuance. However, substantial weakening of debt service coverage from pledged parking system net revenues could negatively pressure the rating.

UF OPERATIONS: While not expected, a material deterioration of the university's credit profile or enrollment trends could negatively pressure the rating.

PENDING CONSTITUTIONAL AMENDMENTS: Any material impact to pledged revenues that results from passage of proposed constitutional amendments -- if the amendments limit UF's ability to increase tuition or parking system fees pledged to any UF or parking system revenue bonds -- could negatively pressure the rating.

CREDIT PROFILE

UNIVERSITY OF FLORIDA

UF was established in 1853, is Florida's oldest university, and is one of 12 public universities in Florida. It is a comprehensive research university and a designated land-grant institution. The main campus is in Gainesville. Enrollment for fall 2017 was 57,256 (about 48,679 FTE), of which about 66% are undergraduates. Estimated headcount enrollment for fall 2018 is 57,132.

Enrollment has fluctuated slightly in recent years but overall is relatively stable and consistent with what Fitch expects for a flagship university. Most students originate from Florida, and both demand and student quality remains strong. Professional degree programs include business, engineering, law, nursing, dentistry, medicine, veterinary medicine and pharmacy. UF's healthy enrollment trends, along with employment levels, drive solid demand for the parking system.

THE PARKING SYSTEM

The parking system is a self-supporting auxiliary that maintains and operates garages, surface lots, and metered parking spaces on campus. The system operates 13 multi-level parking facilities providing 9,885 spaces. In addition to garage parking, 14,287 spaces are available in over 70 surface lots throughout the campus.

The parking system currently serves a campus population of 84,000 student, faculty and staff and an undeterminable number of visitor, hospital and clinic, delivery, service and emergency vehicles that require spaces each day. The parking needs of these vehicles are accommodated by 24,172 spaces. The university currently sells about 40,000 parking decals during the year, with as many as 32,400 active at peak demand.

The current financing will support the need for additional parking on the main campus. It will finance the construction of a multi-level parking garage containing approx. 1,900 parking spaces, associated site work and utilities, and roadway intersection improvements. The new garage will be located on an existing surface parking lot in the south central portion of the main campus. The garage will be constructed on about 560 parking spaces in the existing surface lot, resulting in a net increase of 1,340 spaces when completed in Feb. 2020. The garage will be used as an unattended parking area for permitted graduate and professional students, faculty and staff. In the short term, the University has no current plans to build any further structured parking other than under the current financing plan which will provide 1,340 net spaces.

DEMAND DRIVES SOUND COVERAGE

UF's large enrollment base supports generation of fee revenues and demand for parking services and facilities. The Parking System's financial goal is to operate on a break-even basis generating revenue sufficient to pay operating costs and debt service and to provide for the long-term maintenance of facilities. Fee increases are enacted only when and to the extent needed. The system has historically generated sound operating margins (FY13-FY17 averaging 8.5%), including 5.3% in FY2017, which are necessary to sustain its high debt burden.

Sales of parking decals, tags and permits to students, faculty, staff and visitors make up 35% of the total system operating revenues and is the primary pledged revenue source for the series 2018A bonds. Other pledged revenue sources include revenues collected from parking fines, visitor parking at the Welcome Center Garage, parking meters and special events. A significant 47% of the system's total operating revenues come from the TAF charged per credit hour for all students, excluded from pledged revenues. The exclusion of this broad mandatory fee is a key credit weakness.

Decal sales are steadily increasing year over year and reached 40,078 in FY2017, up 5.8% from FY2016. Decal and reserved space revenues are dependent upon the price of a decal as well as the total number of decals sold. Parking decal revenue continues to increase year over year as non-student decal prices were raised by 2% in 2014 and 4% in 2016. It is expected that decal revenue will grow from year to year based mainly on rate increases.

To provide the funds needed for future operations and additional debt service, the University implemented a parking decal rate increase plan with the approval of the University's Board of Trustees that spans a four-year period starting in Fiscal Year 2018. Faculty, staff and commercial vehicles decals, meter (visitor parking at Welcome Center Garage and the 2018A project), and the University Athletic Association event fees will increase by 7% in both FY18 and FY19, and by 4% in both FY20 and FY21. Demand for decals is expected to remain constant despite the price increases according to management.

Historical debt service coverage from pledged revenues is sound and has improved in recent years from 1.59x in fiscal 2013 to 2.65x in fiscal 2017 due to positive enrollment trends, rate increases, good expense management and debt amortization. Legal pro forma MADS coverage, including the 2018A bonds, from pledged net revenues is expected to be slim but adequate at 1.70x based on fiscal 2017 pledged revenues.

Projected pledged revenues, which includes approved non-student decal rate increases over the next four-years, is expected to generate pro forma MADS coverage at 1.85x in fiscal 2019, with coverage of at least 2.0x thereafter (through fiscal 2022). Legal coverage excludes certain subordinate expenses from pledged net revenues.

SYSTEM'S HIGH LEVERAGE AND LIMITED BALANCE SHEET STRENGTH

The system's reserves are sound at 48% of operating expenses. Balance sheet cushion has strengthened somewhat over the past five years; however, reserves are periodically spent down to fund capital projects. The system's high leverage, which is typical of standalone university auxiliaries, is also reflected in its high debt burden, with MADS of $3.59 million consuming a high 13.1% of fiscal 2017 total system operating revenues. However, Fitch recognizes that the system's purpose and capital-intensive nature will constrain its ability to amass significant reserves.

PENDING CONSTITUTIONAL AMENDMENTS

There are two proposed constitutional amendments on the ballot that could affect UF if they are approved by 60% of voters in November 2018. Fitch will continue to monitor these events and the impact, if any, on UF or the parking system revenue bonds.

The first proposed amendment would require a two-thirds vote (rather than simple majority) by the Florida Legislature in order to adopt any legislation that authorizes new or increases existing state taxes or fees. If passed, this amendment could apply to future increases on undergraduate in-state tuition.

The second proposed constitutional amendment would require a two-thirds vote (rather than simple majority) by the University's Board of Trustees to increase any fee that currently has to be approved by the Board of Trustees. With regards to UF's Parking system, this would include the decal fees (and potentially some of the other smaller parking revenue sources as well) that secure payment of the Series 2018A Bonds, as well as the mandatory transportation access fee which are not pledged to the Series 2018A Bonds.
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Publication:Daily the Pak Banker (Lahore, Pakistan)
Geographic Code:1U5FL
Date:Nov 26, 2018
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