OREANDA-NEWS. Fitch Ratings has affirmed the 'AA' rating on approximately $150.3 million of university system improvement revenue bonds issued by the State of Florida, Board of Governors (BoG) on behalf of the State University System of Florida (SUS).

The Rating Outlook is Stable.

SECURITY
The bonds are secured by and payable from a first lien on capital improvement fees (CIF) levied on a per credit hour basis by SUS member institutions on all enrolled students.

KEY RATING DRIVERS

STABLE CREDIT CHARACTERISTICS: The 'AA' rating reflects the mandatory fee on all students supporting robust generation of pledged CIF revenues and sound coverage of related debt service. The system also benefits from stable enrollment trends and a good financial position.

INTEGRAL ROLE IN STATE HIGHER EDUCATION: The SUS, made up of Florida's 12 public universities, plays an essential role in delivering public higher education throughout the state. Very large system-wide FTE enrollment over 200,000 provides a broad base on which the pledged fee is assessed.

SOLID DEMAND TRENDS: Healthy student demand for SUS' member institutions continues to support satisfactory coverage. Fitch expects favorable demographic trends and the system's relative affordability to support stable to modestly growing enrollment going forward.

RATING SENSITIVITIES

MAINTAIN COVERAGE: Substantial weakening of debt service coverage below historical levels due to lower pledged capital fee revenues from students across Florida's State University System could negatively pressure the rating.

GENERAL SYSTEM HEALTH: A trend of weak state operating support and deficit operations across the system, while not expected, could affect student demand and negatively pressure the rating.

CREDIT PROFILE

The SUS consists of the 12 public universities across the state of Florida. The BoG is responsible for coordination and management of the university system, and each university is directly governed by its own Board of Trustees.

SOUND COVERAGE FROM PLEDGED REVENUES

Debt service coverage from pledged revenues was sound at 2.6x in fiscal 2014 and 2.5x in fiscal 2015. Steady enrollment trends and a significant increase in CIF rates in fiscal 2013 support coverage levels. There are no near-term debt plans, as the legislature has not authorized additional bonding authority for the program. Fitch believes the program has additional debt capacity, if authorized, at the current rating level but expects pledged coverage to remain similar to historical levels and generally above the 1.2x additional bonds test.

FLEXIBILITY TO RAISE PLEDGED FEES

Each institution's Board of Trustees, with the approval of the BoG, may increase the CIF up to $2.00 per credit hour over the prior year, with the CIF not to exceed 10% of the base tuition rate per credit hour. The highest fee at any institution for 2015-2016 is $6.76, below the limit of $10.33 per credit hour based on fall 2016 undergraduate resident tuition rates. After most institutions increased their CIF rate for the fiscal year 2013, it has remained effectively flat. The BoG does not expect any increases in tuition or CIF rates in the near term, but the system's flexibility to increase pledged revenues if necessary is a credit positive.

STABLE DEMAND AND ENROLLMENT SUPPORT FEE BASE

Sufficiency of pledged revenues ultimately depends on students' demand for SUS member institutions. System-wide FTE enrollment totaled 209,578 for the 2014-2015 academic year and has been generally steady over the past five. Enrollment trends are supported by strong demand at the undergraduate and graduate levels, demonstrated by increasing application volumes and solid overall matriculation rates. For resident students, who make up over 90% of system enrollment, SUS member institutions have a low average cost of attendance that is among the most affordable in the country and is generally well below private institutions. Fitch expects the system's affordability and favorable statewide demographic trends will continue to support large and stable SUS enrollment.

SYSTEM HEALTHY DESPITE STATE CUTS

While not directly related to pledged revenues, the financial health of the overall system reflects the ability of member institutions to maintain stable operations that support strong demand. SUS member institutions experienced some financial stress through fiscal 2013 due to state appropriation cuts. Appropriations were restored in the fiscal 2014 budget and are now growing; accordingly, SUS member's operating margins have improved and are again positive overall. Tuition rates are being held flat, but increasing state support and generally conservative management should support balanced operations over time. In addition, SUS institutions have good reserves and very low debt burdens, reflecting historically strong state capital support.