OREANDA-NEWS. Fitch Ratings has assigned an 'A' rating to the following series of educational, including athletic, facilities improvement revenue bonds to be issued by FSU Financial Assistance, Inc. (FSUFA):

--\$58.78 million, series 2015A;
--\$9 million, series 2015B (taxable);
--\$11.35 million, series 2015C.

The fixed-rate series 2015 bonds are expected via negotiated sale in early July. Bond proceeds will be used to finance certain capital improvements to Florida State University's (FSU) Doak S. Campbell Stadium, including improvements to the club seats, stadium conference suites, and structural painting; fund capitalized interest; and pay issuance costs.

In addition, Fitch affirms the 'A' rating on the following educational, including athletic, facilities improvement revenue bonds issued by FSUFA:

--\$35.58 million, series 2012A;
--\$5.72 million, series 2012B (taxable);
--\$12.79 million, series 2012C.

The Rating Outlook is Stable.

SECURITY

Full faith and credit obligations of FSUFA, secured by and payable from pledged revenues that include conference facility revenues, license fees, university athletic department rent, trademark revenues, club seat revenues and net ticket revenues. In addition, a debt service guaranty is provided by the Seminole Boosters, Inc. (the Boosters).

KEY RATING DRIVERS

INSTITUTIONAL ALIGNMENT: The 'A' rating primarily reflects the overarching ties between FSUFA and FSU, in conjunction with the general credit attributes of FSU. FSUFA plays an integral role in the overall operations of FSU through its financings of athletic program needs, and components of pledged revenues are derived from FSU. Counterbalancing factors include the non-essential nature of the revenue pledge; a high debt burden; and the limited assets of the guarantor, the Boosters.

SOLID COVERAGE FROM PLEDGED REVENUES: Pledged revenues, while largely derived from discretionary sources, consistently provide solid (over 2x) debt service coverage. Two components of pledged revenues (net ticket revenue and university athletic department rent) are paid by FSU and alone nearly cover pro forma maximum annual debt service (MADS).

HIGH DEBT BURDEN: The Boosters continue to operate with a very high debt burden. Total pro forma MADS increases to about \$10.6 million and represents 30% of fiscal 2014 operating revenues. However, Fitch notes that a high debt burden is not atypical of a direct support organization (DSO) and other university auxiliary enterprises.

RATING SENSITIVITIES

RELATIONSHIP WITH FLORIDA STATE UNIVERSITY (FSU): Maintenance of the Seminole Boosters, Inc.'s (of which FSU Financial Assistance, Inc. is a component unit) strategic alignment with FSU, along with the two organizations' overlapping governance and institutional priorities, is integral to rating stability.

ATHLETIC PROGRAM DEMAND: Continued demand for FSU's various athletic programs, including through ticket sales and fundraising, will support the Boosters' ability to generate revenues sufficient to adequately meet annual debt service obligations.

ADDITIONAL LEVERAGE: Incurrence of additional debt without a corresponding increase in pledged revenues or funds available for repayment could negatively pressure the rating.

CREDIT PROFILE

FSUFA is a component unit of the Boosters, a separate 501(c)(3) DSO of FSU. As a DSO, the Boosters play a crucial role in providing financial support to FSU's athletic department with regard to programs, scholarships, and capital needs. The 'A' rating primarily reflects the importance of athletics at the university due to its impact on financial resources, student demand, and development. In addition, the close, collaborative relationship between the Boosters and FSU, which Fitch views positively, is reflected in the Boosters' governance structure, in which its board and management team are represented by individuals that overlap the two organizations, including the university's CFO. Fitch maintains an 'AA' rating on FSU's housing, parking, and mandatory student fee revenue bonds.

In Oct. 2014 (fiscal 2015), the Boosters' comptroller was arrested and his employment subsequently terminated after being charged with grand theft that resulted in an approximate loss of \$870,000. The loss stemmed from unauthorized disbursements made by the comptroller during fiscal years 2012-2015. Fitch notes positively that the loss is less than the \$1 million limit covered under the Boosters' insurance policy, and while they have yet to collect on their claim, management believes the funds will be fully recovered. The loss was a nominal sum compared to the Boosters' operating budget and balance sheet resources, and while Fitch was concerned with the lapse in internal controls that allowed the fraud to occur, the Boosters are confident that the former comptroller acted alone via a single brokerage account. They have since updated their internal policies and procedures, and advised that there has been no pull back in donor support.

PLEDGED REVENUES SUPPORT COVERAGE, OFFSET BURDEN

Revenues pledged to FSUFA's revenue bonds continue to provide healthy coverage of related debt service. Fiscal 2014 pledged revenues totaled \$14.3 million, up from \$12.2 million in fiscal 2013, and covered current year debt service on parity obligations of \$5.1 million by a healthy 2.77x, and would cover pro forma MADS (which increases to about \$10.2 million) by a sound 1.41x. Pledged revenues are projected to total \$15.7 million for fiscal 2015, which would cover current year debt service by 2.97x or MADS by 1.55x.

As noted above, a portion of pledged revenues are sourced directly from FSU's athletic department via athletic facility rent (\$1.85 million) and net ticket revenue (\$7 million). The net ticket revenue portion was increased from \$5 million effective May 2015 in advance of the series 2015 transaction. In Fitch's view, this provides a stable and predictable source of funds to the basket of pledged revenues. These funds alone, which total \$8.85 million annually, would cover pro forma MADS by nearly 1x (0.87x). Payments of net ticket revenue will only be paid to FSUFA by the university if needed to cover debt service. Fitch notes positively that to date, this has not been necessary.

Similar to other DSOs or university auxiliary enterprise operations, the Boosters maintain a very high pro forma debt burden. MADS would consume about 30% of the Boosters' fiscal 2014 operating revenues of \$35 million. Also, common of auxiliary enterprises, balance sheet resources are modest and provide a slim financial cushion. As of June 30, 2014, the Boosters had \$18.9 million of available funds (or cash and investments not permanently restricted), which covered operating expenses (\$40 million) by a modest 47.3% and pro forma debt (about \$156 million) by a low 12.1%.

Pro forma debt includes revenue bonds and notes payable. Fitch notes that FSUFA maintains two series of parity revenue bonds totaling \$13 million (series 2014 and 2013) that were privately placed with commercial banks and which fully amortize through fiscal 2017 and 2024, respectively. Fitch's concerns over the high debt burden and limited balance sheet liquidity continue to be partially offset by the stability of the revenues pledged to FSUFA-related debt service, the self-supporting nature of debt-financed facilities and the Boosters' demonstrated fundraising ability in support of athletics-related projects.

Over the past two years, the Boosters completed several capital projects, including an indoor football practice facility, student-athlete housing and the mixed-use College Town project. These projects were all completed on time and within budget, and were financed with a mix of debt, gifts and cash. Upcoming projects, which will be funded with the series 2015 bonds, include additional club seating to the south end zone of FSU's football stadium and other stadium renovations and improvements. The new club seats (currently about 32% pre-sold) are projected to add more than \$5 million of revenue annually to FSUFA's revenue pledge upon project completion, which is expected by the start of the 2016 football season (fiscal 2017).

According to management, there are no additional major capital or debt plans anticipated at this time. Fitch will continue to monitor the Boosters' capital financing needs, noting that any material increase in debt without a corresponding increase in resources available for its repayment could yield negative rating pressure. Fitch continues to view favorably management's conservative capital budgeting practices, which require certain projects to generate revenues sufficient to cover any associated debt service. Moreover, the Boosters increase in leverage is also partially mitigated by its recent \$250 million capital campaign, which is part of the university's broader \$1 billion fundraising effort.

FLORIDA STATE UNIVERSITY

FSU is a public comprehensive, graduate research university with its main campus located on 474 acres in Tallahassee and a 25-acre branch campus in Panama City. It enrolls nearly 42,000 students, and comprises 16 colleges that offer undergraduate degrees in 103 fields of study, 115 graduate-degree programs, and 76 doctorate-degree programs. FSU's regional accreditation with the Southern Association of Colleges and Universities was most recently re-affirmed in 2014 for another 10-year term.

Headcount enrollment grew very slightly in fall 2014 to 41,773, and is up a modest 3.8% since fall 2009. FSU's stable enrollment represents sustained demand despite recent tuition increases, which were primarily the result of sizeable cuts in state funding. However, tuition and fees were held flat for fall 2014 and tuition is expected to be held flat again for fall 2015.

Fiscal 2014 financial results reflected a 0.8% GAAP-based operating margin, which was an improvement from a negative 2% margin in fiscal 2013. Improvement was primarily the result of a substantial increase in state appropriations, which was part restoration of prior cuts, as well as additional funding related to FSU's designation as a preeminent state research university and its achievement of certain performance metrics. FSU expects fiscal 2015 results to exceed the fiscal 2014 level due largely to further increases in state appropriations.

FSU's low pro forma MADS burden (2.2% of fiscal 2014 unrestricted operating revenues) supported solid MADS coverage of 3.7x. Total institutional MADS equates to about \$24 million (fiscal 2017) and includes debt service on housing, parking, mandatory student fee (all rated 'AA' by Fitch), and dining revenue bonds. FSU's balance sheet resources lend further strength and protect it against potential adverse swings in revenues and/or expenses. Available funds totaled \$621.6 million as of June 30, 2014 and covered fiscal 2014 operating expenses (\$1.07 billion) by an adequate 58.1% and pro forma debt (about \$276 million) by a solid 225%.