OREANDA-NEWS. Fitch Ratings has assigned an 'A+' rating to approximately \$27.1 million of dormitory revenue refunding bonds issued by the State of Florida Board of Governors (BoG) on behalf of Florida International University (FIU).

The series 2015A bonds are expected to be sold competitively on or about the week of April 27. The bonds will refund outstanding series 2004A bonds (not rated by Fitch) for economic savings.

At the same time, Fitch affirms the 'A+' rating on approximately \$72 million of outstanding dormitory revenue and refunding bonds series 2011A and 2012A issued by the BoG on behalf of FIU.

The Rating Outlook is Stable.

SECURITY:

Dormitory revenue bonds are secured by a first lien on pledged net revenues of FIU's student housing system. Additional security provisions include a pledge of sufficiency and a 1.2x additional bonds test (ABT).

KEY RATING DRIVERS:

ADEQUATE COVERAGE: The FIU housing system serves approximately 3,184 of the 31,947 full-time students on its main campus in Miami. The 'A+' rating reflects the system's essentiality, adequate coverage and strong operating performance, which are driven by healthy demand for and occupancy of on-campus residential facilities.

STABLE DEMAND: Enrollment growth at FIU in recent years has driven consistent demand for housing as occupancy remains high. Most FIU students do not live on campus, but Fitch believes the large full-time population provides more than sufficient demand for the relatively small number of on-campus beds.

HIGH DEBT BURDEN: The system's debt burden is very high, though not inconsistent with similar auxiliary systems. System coverage has historically been sound, with Fitch-calculated annual debt service coverage averaging 1.4x over the past five years. FIU aims to expand its housing capacity, likely bonding for new facilities over the intermediate term. The current rating reflects Fitch's expectation that coverage could moderate toward an adequate 1.2x over the longer term, consistent with the limitations of the ABT.

SOUND UNIVERSITY CREDIT PROFILE: FIU's credit profile is generally characterized by balanced operations, healthy balance sheet resources, and a low debt burden. Fitch believes FIU is also well-positioned going forward based on strong results under Florida's performance funding metrics.

RATING SENSITIVITIES

HOUSING DEMAND: Rating stability assumes sufficient student demand to maintain high occupancy rates and adequate debt service coverage related to existing and future system facilities. While unanticipated, a meaningful decline in demand could result in downward rating pressure.

UNIVERSITY OPERATIONS: An unexpected deterioration in FIU's overall financial profile could also pressure the housing system rating, given the limited revenue pledge.

CREDIT PROFILE

FIU, one of 12 institutions of higher education in Florida's State University System, is the largest university in South Florida. The university serves over 54,000 students on its two main campuses in southwest and northeast Miami-Dade County and satellite campuses located in Broward County and downtown Miami. FIU's housing system is a component auxiliary enterprise that finances and operates the university's campus housing stock consisting of six facilities and 3,184 beds.

STRONG OPERATIONS; ADEQUATE COVERAGE

The system has consistently generated strong operating margins, averaging 17.4% over the past five years. Fiscal 2014 operations generated another strong margin of 20% as a result of revenue growth from a new project coming online, continued high occupancy, and modest increases in rental rates. Strong operations generated sound coverage of debt service as calculated by Fitch of 1.44x pro forma maximum annual debt service (MADS, \$9.7 million). Pledged net revenues, which exclude certain expenses, generated slightly stronger 1.52x legal coverage of pro forma MADS. The rating reflects Fitch's expectation that pledged coverage could moderate toward an adequate 1.2x over time with additional debt issuance.

LARGE AND GROWING ENROLLMENT; GOOD DEMAND

FIU has historically had a large commuting population, but significant enrollment growth in recent years has increased demand for on-campus housing. Full-time students, who are a better measure of potential housing demand than total headcount, have grown 20.8% from 26,439 in fall 2010 to 31,947 in fall 2014, about 10x the current on-campus housing capacity of 3,184 beds. Growing enrollment and limited on-campus housing capacity have ensured consistently high system occupancy levels (98% in fiscal 2014). FIU's long-term plans for housing capacity contemplate roughly doubling the percentage of full-time students living on campus. Growth in residential enrollment, especially for lower division students, is aligned with FIU's strategic aims of improving student outcomes and success metrics emphasized in Florida's performance-funding framework.

DEBT AND BALANCE SHEET RESOURCES

The system has somewhat limited liquidity, typical of auxiliary enterprises. The system's available funds, defined as cash and investments not permanently restricted, totaled \$19.7 million as of June 30, 2014. This unrestricted liquidity made up a healthy 80.8% of operating expenses, but only 18.5% of debt due to the system's high leverage. The MADS burden is very high at 31.9% of fiscal 2014 operating revenues but not atypical for a capital-intensive auxiliary system. FIU expects to pursue an additional debt-funded housing project on the main campus in the next two to five years. Fitch believes the ABT and management's internal guidelines provide good assurance that pledged coverage will remain at least 1.2x or stronger.

UNIVERSITY OPERATIONS

FIU's credit profile remains sound and supportive of its auxiliary enterprises including the housing system, although general university resources are not pledged to pay the bonds. FIU's operating margin recovered to breakeven as expected in fiscal 2014 from negative 3% in fiscal 2013 due to substantial restoration of prior years' state appropriation cuts. Fitch believes FIU is well-positioned for increased state support based on its strong scores on Florida's performance-funding metrics, which increasingly drive appropriation levels. However, the political environment currently prevents tuition increases and limits revenue-raising flexibility. FIU's available funds (unrestricted cash and investments) of \$286.2 million as of June 30, 2014 equaled an adequate 33.4% of operating expenses and a strong 107% of pro forma debt. MADS equals a low 2.2% of operating revenues. The university's low leverage and debt burden reflect historically strong state capital support.