OREANDA-NEWS. Fitch Ratings has affirmed the 'BBB+' rating on approximately \$131.2 million of student housing revenue bonds issued by the Illinois Finance Authority. The bonds were issued on behalf of the Educational Advancement Fund, Inc. (EAF) to finance the University Center of Chicago (UCC). UCC is a 1,720-bed student housing project (the project) located in the South Loop of Chicago.

The Rating Outlook is Stable.

SECURITY

The bonds are an unlimited general obligation of EAF secured by the gross revenues of UCC, in addition to a mortgage on and security interest in UCC and the real estate on which UCC is located. Additional bondholder protections include a capital maintenance reserve funded annually at 3% of gross revenues from the previous fiscal year, 1.2x annual debt service (DS) coverage requirement, and a historical 1.2x additional bonds test.

KEY RATING DRIVERS

OCCUPANCY CHALLENGES DRIVE OUTLOOK: The revision of the Outlook to Negative from Stable reflects weaker overall participant enrollment for fall 2014. The Outlook revision also reflects concern over persistent declines that could result in stressed occupancy levels leading to a further reduction in each participant's dormitory usage commitment to EAF. The final member dormitory commitments for 2015 - 2016 are down by 48 beds.

OPERATIONAL STABILITY SUPPORTS AFFIRMATION: The 'BBB+' rating reflects EAF's positive operating performance, adequate debt service coverage (DSC) supported by stable occupancy rates at UCC and effective facilities management by US Equities Student Housing (USE), which has joined CBRE Inc. (CBRE or the project manager). In addition, the building's location in Chicago's downtown loop provides for a broader pool of prospective occupants. Offsetting the aforementioned positive factors are declining enrollment levels at the participant schools and limited liquidity.

PROJECT SUPPORTS COVERAGE: The project historically generates excess operating income beyond the needs of the project. Excess income at end of the year (after all requirements of the bond indenture are made), as a practice, is disbursed back to member institutions on a pro-rata basis. Bond debt service payments are non-recourse to individual member institutions; however, the project alone provides adequate DSC. Actual DSC for fiscal 2014 is 1.39x, exceeding EAF budgeted DSC of 1.27x.

DEMAND DRIVES OCCUPANCY: Student demand continued softening in fiscal 2015 at the EAF member institutions: Columbia College Chicago (Columbia), DePaul University (rated 'A' with a Stable Outlook by Fitch), and Roosevelt University (rated 'BBB-' with a Stable Outlook). Diminishing demand levels at member institutions drives weakening in the total dormitory usage commitments to EAF for fiscal 2016. The decline in one participant's commitment is not expected to be augmented by adjusting allotments between member institutions, according to management.

PRUDENT MANAGEMENT MAINTAINS COVERAGE: EAF continues to generate positive operating margins and adequate coverage, year-over-year. Members have the ability to reallocate rooms among member institutions or sell uncommitted beds to non-members which provides some operating flexibility. Improvement in non-student-related revenue sources, namely conference housing, food services and retail services, will be key to maintaining project stability in the event the beds remain uncommitted.

RATING SENSITIVITIES

DIMINISHED COVERAGE: A material reduction in student room revenue from member institutions without a commensurate increase in other project revenue sources could diminish current DSC levels which may negatively impact the rating.

ENROLLMENT DECLINES AT MEMBER INSTITUTIONS: Continued enrollment declines at the member institutions would likely cause negative rating action, given that demand from the three member institutions is the primary underpinning of the rating and reflective of their respective needs for housing.

SHIFTS IN HOUSING MARKET: The rating is also sensitive to the local student housing market in general. Should there be an influx of alternative housing options, utilization at UCC could be negatively impacted.

CREDIT PROFILE

EAF is a not-for-profit corporation formed to acquire land and construct, operate, and maintain UCC, a college and university residential complex. Columbia College of Chicago, DePaul University, and Roosevelt University (collectively, the 'member institutions') are the sole members of EAF, with membership percentages of 40.625%, 40.625% and 18.75%, respectively. The membership percentages are relevant for voting, allocating residential facilities of the complex, and monetary distributions. Opened in 2004, CBRE primarily houses upper-class students attending the downtown campuses of EAF member institutions. UCC is managed by USE and an operating committee consisting of one or more representatives of each EAF member institution.

OPERATING STABILITY

Fiscal 2014 operations generated a high 17.7% operating margin, compared to 15.2% in fiscal 2013, the highest since inception of the project. EAF revenue sources, in addition to student housing and food services include non-student-generated revenues, namely conference housing and retail operations. All of these sources have reflected growth year over year during the past five years, except food services, which dipped slightly in fiscal 2013. UCC's retail space is leased to tenants via multi-year leases with staggered terms and continues to be a stable source of income.

The operating budget for 2015 contemplates another year of positive operations. Although EAF does not provide mid-year interim operating data, management expects to achieve results in fiscal 2015 similar to the previous year, based on UCC's high economic occupancy levels (all beds paid and accounted for by members). Economic occupancy is predicated each year on commitment of 1678 beds (excluding staff beds).

The operating budget for fiscal 2016 is not yet available to Fitch, and expected to be finalized in mid-May. Management expects to be able to market the uncommitted or unfilled beds to other institutions or sell them as year around conference beds to achieve the 1.27x coverage. Fitch will continue to monitor their progress. Inability to fill the uncommitted beds or adjust the budget accordingly could negatively impact the rating.

HIGH DEBT BURDEN; ADEQUATE DEBT SERVICE COVERAGE

EAF's positive operations are offset by a very high debt burden with maximum annual debt service of about \$11.4 million consuming 37.7% of operating revenues in fiscal 2014. Fitch notes these characteristics are not uncommon for a single-purpose entity created to operate a self-supporting project.

The series 2006 bonds debt service payments are non-recourse to individual member institutions; however, the project alone provides adequate DSC which drives the current rating. Actual DSC for fiscal 2014 is 1.39x, exceeding EAF budgeted DSC of 1.27x and the 1.2x coverage requirement. EAF's management expects DSC for fiscal 2015 to meet or exceed budgeted DSC (1.27x).

Fitch will continue to monitor the impact of any reductions in student room revenue on DSC levels in fiscal 2016 due to pressured enrollment at member institutions. Fitch expects management will offset any decline with increases in other project revenue sources or budget accordingly. Inability to maintain DSC at or near current level could negatively impact the rating. Fitch views positively the five year renewal of the facility manager contract with CBRE in 2013, as CBRE has been instrumental in managing the project which generates surpluses year over year.

BALANCE SHEET LIQUIDITY REMAINS WEAK

As of fiscal year end 2014, EAF's available funds, or cash and investments not restricted, increased to \$11.5 million, up from \$10.8 million in fiscal 2013. As a percentage of fiscal 2014 operating expenses (\$24.8 million) and debt (\$131.3 million), available funds were adequate to maintain the 'BBB+' rating at 46.4% and 8.8%, respectively.